The Personal Insolvency Act, 2012, represents a radical overhaul and modernisation of Ireland’s previously archaic personal insolvency laws. This Act reforms the current bankruptcy laws and provides for three new debt settlement arrangements and a new independent body to oversee the process, provide guidelines and develop policy.
- Insolvency Service of Ireland
- Debt Relief Notice
- Debt Settlement Arrangement
- Personal Insolvency Arrangement
insolvency Service of Ireland
The Act makes provision for the establishment of the Insolvency Service of Ireland (ISI), an independent body responsible for overseeing the new debt settlement arrangements. It is also responsible for authorising and regulating approved intermediaries and insolvency practitioners to work with applicants seeking to avail of the new arrangements. Its role includes:
- Administering the new debt settlement arrangements
- Authorising Approved Intermediaries (AIs)
- Authorising and regulating Personal Insolvency Practitioners (PIPs)
- Developing guidelines and contributing to policy development
- Arranging for the provision of education and training
- Monitoring the operation of new procedures
Debt Relief Notice
The first new non-judicial debt resolution process is the Debt Relief Notice (DRN). This allows for a qualifying debtor to ‘write off’ certain debts following a 3 year supervision period. The DRN is designed to provide a low cost and efficient ‘debt forgiveness’ process for insolvent individuals with unmanageable debts who have little or no assets.
To be eligible, debtors must have debts of €20,000 or less; net disposable income of €60 or less per month; assets or savings of €400 or less; and must be insolvent and have no realistic prospect of being able to pay their debts within 5 years of the application date.
A DRN applies to unsecured debts only. The effect of the DRN is that during the 3 year supervision period a creditor subject to the notice will not be allowed to pursue any action against the debtor for the recovery of the debt. When the 3 year period expires, the debtor is discharged from all the unsecured debts specified in the DRN. It should be noted that the rights of secured creditors are not affected by the DRN process.
Debt Settlement Arrangement
A debtor with unsecured debts over €20,000 may be in a position to secure a Debt Settlement Arrangement (DSA) with his creditors. A DSA is a formal arrangement which a debtor enters into with his creditors involving a compromised settlement of the creditors’ claims. The arrangement involves the debtor discharging an agreed proportion of the debts over a 5 year period.
If the debtor fully complies with the terms of the arrangement for the 5 year period, the debts are considered discharged with the proportion of unpaid debts are essentially ‘written off’. However, if the debtor defaults in his obligations, or is in arrears for six months, the DSA is terminated and the debtor becomes liable in full for all debts covered by the DSA.
To avail of the process the debtor must make the settlement proposal through a personal insolvency practitioner who in turn must convene a creditors’ meeting to consider and vote on the proposed DSA. For the DSA to be accepted, at least 65% of voting creditors must support the proposed arrangement. When a DSA is in effect, no unsecured creditor bound by it, including those who voted against it, may take action against the debtor.
Personal Insolvency Arrangement
The Personal Insolvency Arrangement (PIA) applies to insolvent debtors whose combined secured and unsecured debts are more than €20,000 and less than €3,000,000. It is a similar mechanism to a DSA with the main difference being that it includes secured debt and operates over a 6 year period. Critically, the debtor must be allowed to have sufficient income to maintain a reasonable standard of living during the period.
The Act also provides that a PIA shall not require that the debtor sell his home unless the appointed personal insolvency practitioner forms the view that the costs of continuing to reside at the family home are disproportionately large. In practical terms, therefore, the process provides a reasonable balance: it removes the prospect of wholesale evictions but at the same time prevents borrowers from remaining in homes which they clearly cannot afford.
Importantly, it should be noted that a debtor may only avail of the PIA process once in his or her lifetime unless exceptional circumstances caused the debtor’s insolvency.
The Personal Insolvency Act, 2012, provides for a number of amendments to the Bankruptcy Act, 1988. These amendments continue the reform of bankruptcy law in the Civil Law (Miscellaneous Provisions) Act 2011. The main elements of the bankruptcy reforms include the following:
- The introduction of a minimum debt amount of €20,000 in respect of a creditor petition for bankruptcy
- The reduction of the automatic discharge period from bankruptcy (subject to certain conditions) from the current 12 years to 3 years after the date of adjudication
- The discharge from bankruptcy could be delayed by the court, up to a maximum of 8 years, for non-compliance, fraudulent or dishonest behaviour by the bankrupt during the process
- Provision for a court to make a payment order requiring the discharged bankrupt to make certain payments in favour of creditors, allowing for reasonable living expenses, for a period of up to five years
- Extended timeframes in regard to possible fraudulent transfers or settlements of assets by the applicant for bankruptcy (from 1 year to 3 years)
if you have a query related to the effect of the Personal Insolvency Act 2012, please Contact Us to arrange an appointment.