The Personal Insolvency Bill was published in June 2012 and with it came the reform of Ireland’s bankruptcy laws.
Bankruptcy occurs when an individual does not have enough income to pay their debts and they have no assets to sell to repay that debt. This means their creditors may bring them to court and take out a “judgement” against them. This in turn will affect the individuals’ credit rating going forward and leave it near impossible for them to borrow money from a financial institution in the future.
Previously in Ireland when someone declared bankruptcy, they were banned from running a business or borrowing money for 12 years in their own name. A reform of Ireland’s bankruptcy laws was one of the conditions of the EU/IMF bailout agreement which has seen this period being dropped from 12 years down to 3 years under the new legislation.
Under the Personal Insolvency Bill, the Personal Insolvency Service is to be established to process three separate types of non-judicial arrangement:
1. Debt Relief Notice (DRN)
2. Debt Settlement Arrangement (DSA)
3. Personal Insolvency Arrangement (PIA)
Debt Relief Notice (DRN)
The first of these debt settlement procedures is the DRN; this is for people with unsecured debt of less than €20,000 (credit card debt or overdrafts for example). The person in debt needs to apply to the Insolvency Service via an approved intermediary for a DRN.
If the DRN is granted, they will be given a three year period where creditors cannot take action against them for the amount owing on the debt covered by the DRN. When the three year period passes, the person is discharged from the debt.
A person is only permitted one DRN in a lifetime and it must not fall within 5 years of a DSA or PIA which will we explain later in this article. Should the individual covered by the DRN experience a change in financial circumstances during the three year period and pays off 50% of the debt, they will be deemed to have paid off the debt in full.
The DRN will cease and the person will be removed from the Register of Debt Relief Notices.
Debt Settlement Arrangement (DSA)
The next procedure under the legislation is a DSA and is relevant to individuals with unsecured debt of over €20,000. Under a DSA the Insolvency Service will structure a payment plan in which the person would pay a specific amount to their creditors over a five, or in some instances, a six year period. When this period elapses the debts would be discharged.
An application for a DSA must be made on behalf of the individual by a Personal Insolvency Practitioner (PIP). If the DSA is granted, the PIP will then put it forward to the creditors for agreement, once the DSA comes into effect, the PIP will look after the DSA for its entire duration.
If the DSA is terminated or fails, the individual risks an application for bankruptcy, however, if it is satisfactorily completed, all debts covered under the DSA are discharged.
Personal Insolvency Arrangement (PIA)
The third and final procedure is designed to cover both secured and unsecured debt and is used in circumstances where the Insolvency Service decides that a DSA is insufficient to allow the individual to become solvent. Under a PIA some of the unsecured debt is written off and the remainder repaid over a six or possibly seven year period in some circumstances.
Secured debt such as mortgages would also be written down and its repayment period extended, with the effect of reducing the repayment amounts even further. Similar to the DSA above, creditors will also need to approve any PIA and individuals are required to notify the Insolvency Service of any improvements to their financial circumstances.
An application for a PIA must be made to the Insolvency Service by a PIP on behalf of the insolvent individual. If the PIA comes to a satisfactory conclusion, the secured debt is discharged to the extent agreed in the PIA. Any debt obligations not covered in the PIA will remain.
Above is a summary of the three procedures under the Personal Insolvency Bill and the Insolvency Service of Ireland (ISI) which was formally established on the 1st March 2013. If you would like more information on any of the above please feel free to contact Bradán Consulting on +353 (0)91 450705 or send us an email to [email protected]