Personal Insolvency Bill nears completion
10 December, 2012
The Minster for Justice Alan Shatter TD has confirmed that the Personal Insolvency Bill should pass both houses of the Oireachtas and be enacted on December 20th, to take effect in 2013.
A summary of the main components in the bill are here:
The main impact of the Bill is that it proposes to introduce the establishment of a State-run Insolvency Service to operate the new non-judicial insolvency arrangements, it allows for three voluntary debt-settlement systems and it reduces the period of bankruptcy from 12 years to 3 years.
(1) The first voluntary debt settlement proposal is where a debtor has unsecured debts for an amount under €20,000. If the debtor has less than €60 disposable income per month and they do not own assets with a total value of more than €400 (one vehicle up to the value of €1,200 would be exempt from the asset test) then they can apply to the Insolvency Service for a Debt Relief Certificate. A one-year moratorium period during which creditors cannot pursue action against the debtor in respect of the debts covered by the Debt Relief Certificate commences on the date of the Certificate’s registration on the Insolvency Registrar and the debtor is restricted from applying for further credit. After the end of the year, if the debtor is still unable to pay off the debt, the debt is written off. The person must pay €90 for the service and cannot apply for another certificate within six years. A person is only entitled to apply for two Debt Relief Certificates in their lifetime. Similar systems operate in the UK, Northern Ireland and Australia.
(2) The second voluntary debt settlement proposal deals with unsecured creditors over €20,000. In this scenario, a debtor can apply for a Debt Settlement Arrangement. The first step in this process is to contact a Personal Insolvency Trustee who will assist in preparing a financial statement and will apply to the Insolvency Service for a Protection Certificate which will prevent creditors from taking any action against the debtor for 30 days during which time the arrangement is being prepared. The Trustee would then put forward a Debt Settlement Arrangement to creditors for agreement. Creditors will be presented with a possible arrangement which will indicate how the debt is to be repaid over a 5 year period. A percentage of what is owed will be offered to be repaid to the creditors. 65% of creditors must approve of the proposed arrangement and, if the arrangement is agreed upon, the arrangement will be registered on the Insolvency Register. If the debtor makes the payments as per the arrangement for 5 years then the debts covered under the arrangement will be discharged. Only one Debt Settlement Arrangement is permitted in a ten-year period. Creditors have the right to challenge the arrangement and have it annulled by the Court. If the debtor fails to keep up with repayments, the arrangement will fail. Similar systems operate in the UK, Northern Ireland and Australia.
(3) The third voluntary debt settlement proposal is a Personal Insolvency Arrangement for secured and unsecured creditors for an amount of €20,000 up to a maximum of €3million. A person will apply for a Personal Insolvency Arrangement when, although they have an income, they are unable to pay their debts when they become due. A Personal Insolvency Trustee will assess a person’s eligibility and that person must show that they are not suitable for option 2 and they will not be solvent for the next 5 years. The Personal Insolvency Trustee will apply to the Insolvency Service for a Protection Certificate which will prohibit creditors from pursuing the debtor for 60 days. The Trustee contacts the creditors and puts forward proposals of how debts are to be repaid. Unsecured creditors are offered an agreed percentage of what they are owed, to be repaid over 6 years. If part of a person’s mortgage is in negative equity, then this amount could be written off under a Personal Insolvency Arrangement, (e.g. if a person has a mortgage of €500,000, their house is worth just €300,000 and they can only afford to pay a maximum mortgage of €400,000, the debtor and their trustee might propose a debt reduction of €100,000). If a person has investment/buy-to-let properties, these will be put up for sale and if there is still some money owing after these have been sold, then a percentage of what is owing will need to be paid off over 6 years. For the Personal Insolvency Arrangement to be effective, at least 55% of the unsecured creditors and 75% of secured creditors must agree to the arrangement. The arrangement will be registered on the Insolvency Register. Creditors have a right to object to an arrangement by application to the Circuit Court. If a person later sells their family home and the price has increased, there is a provision for some of the money that was written off to be clawed back by the lender. It the debtor wins the lotto or receives a large inheritance over the term of the arrangement, then that will be taken into account also. After 6 years the debtor will be cleared of his unsecured debt. You can only apply for a Personal Insolvency Arrangement once during your lifetime.
The Personal Insolvency Bill also considers Judicial Bankruptcy for secured and unsecured debts. If other options have been tried and they have failed, then bankruptcy may be an alternative option. Bankruptcy can be voluntary or involuntary, but under the new Bill if the debtor owes a debt of less than €20,000, their creditor will not be able to petition the Court to make them bankrupt.
If a petition for bankruptcy is successful, all of the debtor’s property comes under the control of the Official Assignee. Any money earned by the debtor will be used to pay off creditors after their living expenses have been deducted. A debtor will be automatically discharged from bankruptcy in three years, but the Court may make an Order requiring the debtor to continue making repayments to their creditors for a further five years. 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.