The Personal Insolvency Act, 2012 has been hailed as a solution to the debt problems faced by many individuals and families in Ireland.
That remains to be seen.
But we will have a better idea when the Insolvency Service of Ireland is up and running and the first applications for Debt Relief Notices (DRN), Debt Settlement Arrangements (DSA), and Personal Insolvency Arrangements (PIA) are made.
An industry appears to have sprung up around the massive demand from ordinary citizens struggling with unsustainable debts. Do a simple Google search for “insolvency ireland” and you will see a plethora of ads offering “debt solutions” , “free impartial advice”, “debt mediation”, “bankruptcy in the UK”, etc.
Let’s take a look at the options to be found in the Personal Insolvency Act, 2012 first:
they are a debt relief notice (DRN), a debt settlement arrangement (DSA), and a personal insolvency arrangement (PIA).
Debt Relief Notice (DRN)
This is suitable where
A DRN arrangement is permitted for both secured and unsecured debts and is arranged through an Approved Intermediary (AI) rather than a PIP (personal insolvency practitioner). The Money Advice and Budgeting Service (MABS) is an approved intermediary (AI) for a DRN.
The DRN arrangement will normally last for 3 years and provided you stick to the agreed arrangement, you will be debt free at the end of it. (You could be finished earlier also if you pay back 50% of what you owe)
During the duration of the arrangement, your creditors cannot pursue you as they will have agreed to the arrangement.
Your name will be entered on the Register of Debt Relief Notices which is publically viewable by anyone who wishes to view it. It will include your name, address, year of birth and the date of the DRN.
As with all 3 of these personal insolvency solutions, you are only entitled to one in a lifetime.
The general obligations of the debtor under the debt relief notice arrangement can be found in section 36 of the Personal Insolvency Act, 2012.
Debt Settlement Arrangement
A debt settlement arrangement (DSA) is for unsecured debts only in excess of 20,000 euros and is arranged through a PIP (personal insolvency practitioner).
A debt settlement arrangement will last for 5/6 years and once you have stuck to the arrangement the balance of your unsecured debts will be written off at the end of the 5/6 years. You will also be protected from further legal action from your creditors for the lifetime of the DSA.
Your application for a DSA is made to the Insolvency Service of Ireland and brought to Court for approval. If approved, your PIP will put a proposal to your creditors. You need to have the agreement of 65% of your creditors and if you do, the arrangement goes back to the ISI and Court for final approval.
As with the other personal insolvency “solutions”, you can only get one per lifetime and the details are entered on the public Register of Debt Relief Notices.
The special place of the principal private residence is recognised in section 69 of the Act and the general duties and obligations of the debtor under a debt settlement arrangement can be found in section 81.
Personal Insolvency Arrangement (PIA)
The PIA allows you to restructure your debts over 6/7 years and includes both secured (mortgages for example) and unsecured debts. It is for debtors with debts between 20,000 and 3,000,000.
The Personal Insolvency Arrangement is similar to the debt settlement arrangement (DSA) insofar as you need the agreement of 65% of your creditors, you need to apply for one to the Insolvency Service of Ireland through a PIP and the arrangement must be approved by the ISI and Court.
Section 104 deals with the principal private residence under the personal insolvency arrangement and the general duties and obligations of the debtor can be found in section 118.
Successful Completion of Personal Insolvency Arrangement
Section 125 provides inter alia:
|(2) Where the debtor has complied with his or her obligations under the Personal Insolvency Arrangement, subject to the provisions of section 99(2), and 102 (3) and (7) the debtor stands discharged from the unsecured debts specified in the Personal Insolvency Arrangement.
||(3) Where the debtor has complied with his or her obligations under the Personal Insolvency Arrangement, the debtor shall not stand discharged from the secured debts covered by the Arrangement except to the extent specified in the Personal Insolvency Arrangement.
Interestingly as subsection 3 above states:
the debtor shall not stand discharged from the secured debts covered by the Arrangement except to the extent specified in the Personal Insolvency Arrangement.
Protection for Secured Creditors in a Personal Insolvency Arrangement
Section 103 contains a bit of a sting in the tail as it provides, inter alia,
|(11) The obligation to pay an additional amount arising by virtue of this section shall cease—
||(a) on the expiry of the period of 20 years commencing on the date on which the Personal Insolvency Arrangement comes into effect, or
||(b) on the day on which the debtor is scheduled or permitted to fully discharge the amount secured by the security (or such later date as may be specified for so doing in the Personal Insolvency Arrangement) and does so discharge his or her indebtedness,
||whichever first occurs.
Reasonable Living Expenses
All of the arrangements above allow for “reasonable living expenses” and the Insolvency Service of Ireland have issued guidelines and a booklet as to what “reasonable living expenses” are. Click here to read the booklet.
What happens if you don’t stick to the arrangement? The creditors can void the arrangement and pursue you.
With any of the arrangements above you will have to give access to all your bank details and data.
PIPs are likely to charge an initial fee to get the ball rolling and expect to recover the rest of their fee over the lifetime of the arrangement. When choosing a PIP you are not permitted to engage a person with whom you have previously had a relationship with, for example an accountant or solicitor who you have used in the past and who are now personal insolvency practitioners.
Choosing a PIP is an important decision because you will have a relationship with them for 5 or 6 years and it is likely that the quality of PIPs will vary as in all professions.
What Does the PIP Do?
If you are suitable to enter a debt settlement arrangement or a personal insolvency arrangement the PIP will assist you in drawing up a prescribed financial statement (PFS). He will then draw up a proposal to be sent to the Insolvency Service of Ireland, present this proposal (if approved by the ISI and Court) to creditors and if agreed to, will carry out annual reviews until completion of the arrangement after the 5 or 6 years expected duration.
The bulk of the PIP’s fee is likely to be collected over the lifetime of the arrangement but there will be an upfront fee element also which presumably will vary from PIP to PIP. There is no set fee and PIPs are free to set their own rate.
The ISI will maintain a register of Approved Intermediaries (AI) and Personal Insolvency Practitioners (PIP) which you can access on the ISI website.
Register of PIPs
The Insolvency Service of Ireland will maintain various registers, one of which is a register of Professional Insolvency Practitioners (PIPs) which can be viewed here.
David Hall of the Irish Mortgage Holders Association has made some interesting comments about PIPs, according to the Irish Times,
David Hall of the Irish Mortgage Holders’ Association described the number of applicants for registration as Pips and intermediaries as “pathetic given the volumes that were expected to be involved. The biggest single concern with fewer Pips is going to be it will become an elitist, expensive racket.”
He said it had “all the hallmarks of becoming a money up-front service” that would “advantage those who have some money to pay a Pip”. Source: July 15th, 2013, Irish Times
What you might find most interesting about these comments is that I am almost certain I recently heard Mr. Hall being interviewed on Radio 1 recently and confirming that he had applied to become a PIP and was awaiting registration.
Although this would not appear to be inconsistent with the not for profit nature of the Irish Mortgage Holders Association as a colleague of Mr. Hall’s at the Irish Mortgage Holders Association, Stephen Curtis, is currently awaiting registration as a PIP, having completed the PIP course.
Other Debt Relief Options
Other debt relief options include bankruptcy in Ireland which can be applied to Court for around 750 euros.
A negotiated debt settlement is also an option. Problems with paperwork and technical legal defences which are founded on errors in the loan documents and paperwork of some financial institutions can offer a strong negotiating position for the debtor.
During the lending frenzy of the Celtic Tiger years, many financial institutions were so busy churning out loans that the boring, legal housekeeping work in relation to loan documents and form filling was rushed, and in some cases fatally flawed.
Entering a debt settlement arrangement(DSA) or personal insolvency arrangement (PIA) in these circumstances may not be your best option. And your PIP may not have the legal expertise or the time to scrutinise your loan documentation to uncover any such fatal errors.
Remember, a PIP could be an accountant or financial advisor without the necessary legal training to uncover legal flaws which will place a question mark over the enforceability of the loan.
A mediated debt settlement has some attractions over the arrangements set out in the Personal Insolvency act, 2012 including:
confidentiality and no public naming
no annual review by a PIP
no confusion about whether your PIP is favouring your interests or those of your creditors
no “reasonable living expenses” restrictions.
1. Bankruptcy in Ireland
Bankruptcy is another option to be considered, depending on your particular circumstances.
Prior to the Personal Insolvency Act, 2012 the bankruptcy option in Ireland was one of the most prohibitive and draconian in the world as it was almost certainly to last for at least 12 years before discharge.
The new legislation has reduced this period to 3 years at a minimum. You can learn more about bankruptcy procedure in Ireland here.
2. Bankruptcy in the United Kingdom
Bankruptcy in the UK has been utilized by many high profile Irish property developers and others in the last few years. There has also been high profile legal actions involving the bankruptcy or attempted bankruptcy of Sean Quinn, solicitor Brian O’Donnell and his wife Dr. Mary Pat O’Donnell, Ray Grehan, Bernard McNamara, Tom McFeely, John Fleming, Paddy Shovlin, and many others.
The reason for this is quite simple: bankruptcy in the UK is a much more attractive option as it can allow discharge from bankruptcy after 12 months.
Other differences between bankruptcy in Ireland and in the UK are
you remain on the bankruptcy register in Ireland for your lifetime but in the UK for only 3 years
you must advertise your proposed bankruptcy in Ireland but there is no requirement to do this in the UK
in Ireland your bankruptcy must be brought to open hearings in Court; this is not the case in the UK where your bankruptcy application is presented to Court for approval but you might never even see a Judge.
So, as you can see there are many options to be considered by debtors with no “one size fits all” solution.
It really will depend on your particular circumstances but one thing you need to be wary of is apparent guardian angels with a vested interest.
Update 31st August, 2013
It is reported in the Sunday Independent of 1st September, 2013 that former government minister Ivan Yates has just been discharged from bankruptcy by the UK Insolvency Service.