Introduction
PROForensics welcomes the introduction of the Personal Insolvency Act which was signed into law in December 2012. We believe this new legislation represents a positive step forward towards debt resolution for the large number of over-indebted borrowers in Ireland.
Up to now, if you were insolvent, bankruptcy was the only formal mechanism available for you to settle your debts and get protection from your creditors. There was then no discharge from bankruptcy for up to 12 years.
The Personal Insolvency Act 2012 has radically overhauled this position. In terms of bankruptcy, the Act reduces the automatic discharge from bankruptcy to 3 years, subject to certain conditions. More importantly the Act provides structured resolution mechanisms for people with unsustainable debt to reach agreements with their creditors. This provides people with the opportunity to deal with not just secured debt, but also unsecured debt difficulties and also avoid the formal bankruptcy process.
Mechanisms to deal with your unsustainable debt:
The Act introduces three new debt resolution mechanisms to help mortgage-holders, and other people with unsustainable debt, reach agreements with their creditors. These new mechanisms are:
1. Debt Relief Notice (DRN) – this allows for the write-off of debt, generally unsecured, and in some cases, secured up to €20,000, subject to a 3-year supervision period. Your application must be made through an Approved Intermediary (AI). See below for further details.
2. Debt Settlement Arrangement (DSA) – this allows for the agreed settlement of unsecured debt, with no limit involved, normally over 5 years. You must process your application through a Personal Insolvency Practitioner (PIP). See below for further details.
3. Personal Insolvency Arrangement (PIA) – this allows for the agreed settlement of secured debt up to €3 million (though this cap can be increased) and unsecured debt, with no limit involved, normally over 6 years. You must process your application through a Personal Insolvency Practitioner (PIP). See below for further details.
The Act also introduces automatic discharge from bankruptcy, subject to certain conditions, after 3 years as opposed to 12 years at present.
What is the Insolvency Service of Ireland?
The Act provides for the establishment of the Insolvency Service of Ireland (ISI), an independent body, which will have a key role in the delivery, monitoring and execution of the new personal insolvency arrangements provided for in the Act. The ISI will have all powers necessary to ensure its ability to exercise the delivery of the functions provided for in the Act.
The principal functions of the ISI include:
- Monitoring of arrangements relating to personal insolvency.
- Consideration of applications for Debt Relief Notices (DRNs).
- Processing of applications for protective certificates relating to Debt Settlement Arrangements (DSAs) or Personal Insolvency Arrangements (PIAs).
- Maintaining registers of DRNs, Protective Certificates, DSAs and PIAs;
- Providing information to the public on workings of the legislation and developing policy.
What is a Personal Insolvency Practitioner (PIP)?
This is an approved professional who you must appoint to process your application, for either a Debt Settlement Arrangement (DSA) or a Personal Insolvency Arrangement (PIA). The PIP will have been approved and registered by the Insolvency Service of Ireland to operate DSAs PIAs. The fee for the PIP will be paid for by your creditors.
When are the new debt resolution mechanisms available?
None of the new debt resolution mechanisms are available yet – including the Personal Insolvency Arrangement. The Insolvency Service expects to be ready to accept applications in June 2013. The exact date will be dictated by the finalisation of IT, courts and regulatory requirements and the authorisation of Approved Intermediaries and Personal Insolvency Practitioners
Debt Relief Notice
The Debt Relief Notice (DRN) process will provide debt relief for people who have virtually no disposable income or assets and no prospect of being able to pay off the debt in the next 3 years. It will allow for the write-off of your qualifying debt up to €20,000, subject to a 3-year supervision period.
During this period your creditors will not be able to pursue you for payment, but if your circumstances improve during the 3 years, you may have to pay part of your debts accordingly. At the end of the 3 years, all of the debts covered by the DRN will be written off, even if you have not managed to make any repayments.
Your application must be made through an Approved Intermediary (AI). The Money Advice and Budgeting Service (MABS) plans to launch its Approved Intermediary Service during 2013.
Debt Settlement Arrangement
A Debt Settlement Arrangement (DSA) will provide for the agreed settlement of unsecured debt with one or more creditors over a period of 5 years, with a possible agreed extension to 6 years. You may apply for a DSA if the level of your income, assets and debts would make you ineligible for a Debt Relief Notice. You must be able to make some repayments to your creditors in return for a discount of your debts. The DSA will be a voluntary arrangement and it will have to get the support of creditors representing at least 65% of your total debt.
You must process your application through a Personal Insolvency Practitioner (PIP).
Personal Insolvency Arrangement
A Personal Insolvency Arrangement (PIA) will provide for the agreed settlement of secured debt up to a limit of €3 million (although this cap may be increased with the consent of all secured creditors) and an unlimited amount of unsecured debt. A PIA will run over a period of 6 years, with a possible agreed extension to 7 years.
The PIA will work like a Debt Settlement Arrangement in the following ways- you must apply through a Personal Insolvency Practitioner (PIP) and you must be able to make some repayments to your creditors in return for a discount of your debts.
It will be a voluntary arrangement and will have to get the support of creditors, both secured and unsecured, representing at least 65% of your total debt. In addition, over 50% of your secured creditors and 50% of unsecured creditors must vote in your favour.
When the agreed period ends, and if your PIA has operated successfully, you will be discharged from the unsecured debts that it covered but the secured debt will only be discharged to the extent specified in the PIA.
The following table is a summary of the Personal Insolvency Act 2012
| Arrangement | Type of debt covered | Values | Timescales | Apply through |
| Bankruptcy now | Unsecured and secured | At least €1,900 (1 creditor) or €1,300 (combined creditors) | 12 years | High Court (voluntary declaration or else creditors can petition) |
| Debt Relief Notice (DRN) | Unsecured (and secured in certain cases) | Up to €20,000 | 3 years | Approved Intermediary (AI) |
| Debt Settlement Arrangement (DSA) | Unsecured | No limit | 5 years (+1) | Personal Insolvency Practitioner (PIP) |
| Personal Insolvency Arrangement (PIA) | Unsecured and secured | No Limit on unsecured. Up to €3m secured (though cap can increase if agreed). | 6 years (+1) | Personal Insolvency Practitioner (PIP) |
| Bankruptcy in future | Unsecured and secured | €20,000 | 3 years | High Court |
If you require any further information on Personal Insolvency or on the Personal Insolvencty Act 2012 and how it affects you, please feel free to contact us in confidence.
PROForensics
Forensic & Chartered Accountants
Conor McGarry FCA
Phone: 0879983564
Email: conor@proforensics.ie
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