# Flow chart of new system



## Brendan Burgess (25 Jan 2012)

Adapted from the Department of Justice briefing papers

*Step 1:* *Voluntary bilateral agreement* *between borrower and each creditor* 
  –         _applies to unsecured and secured creditors_
  –         _suitable for all borrowers_

if agreement cannot be reached

- Borrower engages *Personal Insolvency Trustee*

*- *Personal insolvency trustee *advises* borrower of options and *assesses *suitability for DSA or PIA

- Application to *Insolvency Service *for protection from creditors for specified period

*Step 2: Debt Settlement Arrangement (DSA)* 
_- applies to unsecured creditors only;_
_- suitable for borrowers with unmanageable short-term unsecured debt and long-term sustainable secured debt; _
_- unsecured loans completely settled over [5] year period;_
_- secured loans not affected by DSA but secured creditors can  voluntarily provide ‘space’ outside of DSA to free up additional borrower repayment capacity to unsecured creditors under DSA._


DSA has been rejected / failed. Personal insolvency trustee proposes a PIA. 
or
if the personal insolvency trustee forms view that DSA would not be viable to restore borrower to solvency and so proposes a PIA. 



*Step 3: Personal Insolvency Arrangement (PIA) *
_- applies to unsecured and secured creditors;_
_- suitable for borrowers with unmanageable unsecured debt and/or unsustainable secured debt;_
_- unsecured loans completely settled over [6] year period;_
_-flexibility as to treatment of secured loans – can be settled over [6] year period (e.g. where there is a sale of the property) or restructured and continue in existence beyond PIA period (e.g. to write-down some of the loan principal, ‘Keane report’-type solutions such as split mortgages, deferred interest etc.); _
_- specific protections for borrower in respect of principal private residence;_
_- specific protections for secured creditors in respect of the value of the security._

*Step 4: Judicial Bankruptcy *
_- applies to unsecured and secured creditors_
_- suitable for all borrowers not dealt with pursuant to Steps 1 to 3 (amendments to Bankruptcy Act 1988 proposed to incentivise borrowers and creditors to make reasonable efforts to reach agreement under those earlier Steps);_
_- little or no flexibility: a court controlled process and all borrower’s property automatically vests in Official Assignee for disposition in accordance with Bankruptcy Act 1988;_
_- 3 year automatic discharge but provision for income payments order lasting up to 5 years post-discharge_


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