The much discussed draft Personal Insolvency Bill, which the Government believes will offer some relief for those struggling to meet their financial obligations, has now reached the committee stage in the Dáil. Because amendments to this draft are still being proposed, it’s not expected that the new system will be in place before mid-2013.
In the meantime, to help you to determine whether you may benefit from the new proposals, we take a look at the main elements of the bill:
1. Settlement Arrangements
The bill will see the introduction of three new debt settlement arrangements as alternatives to bankruptcy:
Debt Relief Notices (DRN)
These allow for the writing off of unsecured debt which qualifies under the new system (e.g. credit cards, personal loans etc) up to €20,000, subject to certain conditions. These conditions include having assets to the value of less than €400 and having little or no disposable income.
Debt Settlement Arrangements (DSA)
These allow for an arrangement for the agreed settlement of unsecured debt over a period of five years (can be six on express agreement of creditors). Amongst other conditions it requires agreement of 65% of the creditors who qualify under the system (those who are owed the money).
Personal Insolvency Arrangements (PIA)
These allow for an arrangement for the agreed settlement of secured debt (e.g. mortgages, secured personal loans etc.) of up to €3m (though this cap can be increased with the consent of all secured creditors) and unsecured debt over a period of six years (can be extended to seven years). This is the only arrangement that can include secured debt. The arrangement has to be agreed by creditors – at least 50% of secured creditors and 50% of unsecured creditors in terms of value. In simple terms the creditors can veto the arrangement.
There are a number of common conditions attached to the above settlement arrangements including:
• The applicant must be insolvent i.e. unable to pay their debts as they fall due – can’t pay;
• The proposal is not made directly to creditors – it must be made to the Insolvency Service (see below) through an Approved Intermediary (expected to be MABs) in the case of DRNs or a Personal Insolvency Practitioner for DSAs and PIAs;
• A person can only apply for each procedure once in their lifetime.
All of these above arrangements are seen as alternatives to bankruptcy. However the bill also proposes a number of amendments to the existing bankruptcy laws, including providing for automatic discharge from bankruptcy, subject to certain conditions, after 3 years – compared to 12 years at present. However, as currently drafted it could take up to 8 years as an Income Payments Order (IPO) can be imposed for up to five years following discharge from bankruptcy. This has been highlighted and is an area where there may well be changes before the bill passes into law.
2. Insolvency Service & Personal Insolvency Practitioners
A new independent body, to be known as the Insolvency Service, will be setup to oversee the new voluntary insolvency system – which will operate outside the court system. The first director the new service was named recently as Lorcan O’Connor, director of accountancy firm Deloite’s insolvency practice. It is expected that the agency will have upwards on 100 staff when fully operational.
The Service will oversee the settlement arrangements described above and will maintain a register of these arrangements. It is also likely to be responsible for authorising the Personal Insolvency Practitioners (likely to be accountants and lawyers) who will play a key role in advising and formulating the arrangements.
The above is only a brief insight into the proposed bill. Whist the introduction of non-judicial debt settlement arrangements is undoubtedly a welcome step, only time will tell how these arrangements will play out in practice.
This article is a summary of the provisions in the draft bill and in no way does it provide advice. We recommend you seek professional advice if you have personal debt issues
MLMG Financial Advisors, St Helens, St Oran’s Road Buncrana, Co. Donegal. Tel +353 (0)74 9321420 / Fax +353 (0)74 9321421/or email: firstname.lastname@example.org
McLaughlin McGonigle t/a MLMG Financial Advisors is authorised to undertake investment business in Ireland by the Association of Chartered Certified Accountants