It is expected that in March or
April of this year the Personal Insolvency
Bill will become law. The stated aim of the law is to alleviate the enormous
financial burden being faced by many people in Ireland’s
poor economic climate; to help them to get back on their feet and contribute to
economic activity again; and to enable creditors to recover money due to them
by individuals to the extent that their means allow. The Insolvency Service of
Ireland will be established under the Act and will be responsible for the
running of the various schemes.
The Bill creates three separate
schemes which those eligible can enter into according to their requirements:
a.
Debt Relief Notice (DRN) – this is available for
people who have unsecured (i.e. not charged to property or other assets) debts
of up to €20,000.00. Such debts might include, for example, credit card debt,
unsecured bank loans or overdrafts, utility bills etc. The process of applying
for a DRN is extremely detailed, and involves the preparation of a detailed
financial statement by an “approved intermediary” on behalf of the debtor. An
application is made to the Insolvency Service initially who then apply to the
Court for the issue of the DRN, which if granted will last for 3 years.
b.
Debt Settlement Arrangement (DSA) – this scheme
applies to people whose debts are unsecured and valued at over €20,000.00, with
no upwards limit. Here, the debtor will apply through a “Personal
Insolvency Practitioner” to the Insolvency Service and thereafter the Court for
a protective Certificate. This Certificate will give a period of 70 days for a
meeting to be held with the creditors. At that meeting, the proposals for
repayment of the debts will be put to the creditors. To put the scheme in
place, the approval of 65% in value of the creditors is required. Once in place
a DSA can last for up to 5 years, and once it expires the creditors are deemed
to be repaid in full. The debtor is subject to certain restrictions while the
DSA is in place.
c.
Personal
Insolvency Arrangements (PIA) – this applies to those whose debts are either
secured or unsecured or both, up to a value of €3 million. The process is
similar to that of the DSA, with a Protective Certificate being issued by the
Court, a creditors meeting being held and voting requirements needing to be
met. This scheme can last for up to 6 years.
Effect of schemes on a debtor:
Clearly the benefit to a debtor
in entering into one of the schemes is that once the scheme has come to an end,
the debts are deemed to have been fully discharged. While one of these schemes
is in place, a debtor is subject to supervision and to certain restrictions in
his / her financial activities for the duration of the scheme. For example,
increases in income or receipt of cash gifts must be declared to the Insolvency
Service and in some cases 50% of the value of both must be paid over to the
Insolvency Service. Credit over a specified amount can only be obtained subject
to conditions. A debtor is obliged to report any material changes in
circumstances. Generally, a debtor must co-operate fully in the process and
comply with any reasonable request made by the Personal
Insolvency Practitioner for information, documentation etc. If the debtor
defaults on the approved arrangement then the scheme will be terminated and the
debtor will again become liable for repayment of the full amount of the debts.
Effect of schemes on creditors:
In all cases, once the initial
Court application has been granted, the debtor is protected against his
creditors pursuing him / her for the recovery of the debts. A creditor can
neither issue Court proceedings against the debtor nor continue with existing
Court proceedings. A creditor can object to the scheme being put in place,
either by voting against an arrangement at the creditors meeting, or by making
an objection to the Court after the initial application. Furthermore, a
creditor can apply to Court at any stage while a scheme is in place for
termination of the scheme on a certain number of grounds, for example if the
debtor is in arrears of agreed payments, or where the creditor believes that
the debtor was ineligible in the first place to enter into the scheme.
It obviously remains to be seen
how many people will avail of Personal
Insolvency protection: it is not a straightforward process by any means and
there are a number of strict eligibility requirements for each type of scheme. The
question also remains as to who the Personal
Insolvency Practitioner will be. The hard-pressed debtor will need robust and
experienced assistance and protection. How will the debtor meet the cost of
this? It will also be interesting to see how many creditors will readily
consent to the arrangements – will it be a case of some payment being better
than no payment? Certainly some of the banks have commented publicly that they
do not intend to engage in any form of debt forgiveness. However, some are
predicting that over 15,000 applications will be made in the first year alone
and it may be hard to ignore those kinds of numbers in the longer term.
Maria O’ Donovan, Solicitor
Wolfe & Co., Skibbereen
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