Guide to Debt Solutions if Debt is Over $50,000
Formal Creditors Proposal compared with Informal Creditors Proposal
| Feature | Formal Creditors Proposal (Part 5) | Informal Creditors Proposal (S55) |
|---|---|---|
| Privacy | Private. Not advertised or listed on public insolvency registers. | Completely Private. A confidential negotiation strictly between you and your creditors. |
| Flexibility | Highly Flexible. Custom terms based on actual affordability (e.g. lump sums, partial asset sales, or varied instalments). | Maximum Flexibility. No statutory rules. You can negotiate any terms, timelines, or debt-forgiveness arrangements the creditors will accept. |
| Court / Government Involvement | Moderate. Managed by a Licensed Insolvency Practitioner. Requires Court approval to finalize. | None. No court, no Official Assignee, and no formal legal process involved. |
| Creditor Protection | Immediate Statutory Shield. Once approved, all creditors are legally bound and barred from calling you. Communication routes entirely through your Trustee. | Negotiated Shield. Stops calls and payments only for the creditors who agree to sign the contract. Does not legally bind any creditors who refuse to participate. |
| Debt Limits | No upper limit. (Typically used for complex debts over $25,000). | No limits. |
| Impact on Business | No statutory restrictions on acting as a company director or continuing to trade. | No statutory restrictions. Business can continue as usual under the new negotiated terms. |
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Key Takeaway: A Formal Creditors Proposal offers the best of both worlds if you have uncooperative creditors: it keeps your affairs private and flexible while giving you a powerful, legally binding shield against all creditors. An Informal Proposal is faster and avoids the courts entirely, but it only protects you from the creditors who explicitly agree to the deal.
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