The long awaited and much anticipated Personal Insolvency Bill has been published. When enacted, the Bill will introduce a new personal insolvency regime in Ireland. The headline provisions of the Bill reduce the bankruptcy period from 12 to 3 years, introduce three alternative debt resolution processes to outright bankruptcy and envisage the establishment of an Insolvency Service. Although mainly non-judicial the alternative debt resolution processes envisaged by the Bill will be subject to the approval of the Courts. A brief summary of the main provisions of the Bill follows.
The Bill proposes certain amendments to the Bankruptcy Act 1988 including automatic discharge from bankruptcy after three years instead of twelve, raising the level of debt required for a petition to be presented to €20,000, making an award of costs to the petitioner discretionary rather than automatic, and making any ongoing payment order have regard to the reasonable living expenses of the debtor and his family. In effect a creditor will have to consider the suitability of one of the alternative debt resolution processes before presenting a bankruptcy petition. The Bill also proposes that existing bankruptcies which are three or more years old will be discharged following a further six month period.
It is proposed that an Insolvency Service will be established. This will be an independent body whose role will include delivering on and monitoring the new personal insolvency arrangements outlined in the Bill and developing policy.
Debt Relief Notices (DRNs) – (less than €20,000 unsecured debt)
Under the new insolvency regime envisaged by the Bill an eligible debtor will be able to apply to the insolvency service through an improved intermediary (most likely through someone like the money advice and budgeting service (MABS)) for a DRN. This procedure will allow the write off of qualifying debt up to €20,000 either by discharging half the debt or after a three-year period.
To be eligible for a DRN a debtor must, among other things, have qualifying debt of €20,000 less, net disposable income of 60 Euro or less a month, assets including savings of less than €400, and be insolvent with no likelihood of becoming solvent within five years.
The intermediary, through which the application is made, must be satisfied that the debtor is eligible for a DRN before applying to the insolvency service. Once the Insolvency Service is satisfied that the debtor is eligible for a DRN it will issue a certificate to the circuit court and if the terrific court is satisfied that all the criteria for the DRN have been met it will issue a DRN in respect of the qualifying debt.
Once they DRN has issued then for a period of three years the debtor is protected from actions taken by his or her creditors to recover the debt. However, the debtor must comply with the conditions of DRN including informing the insolvency service of any material change in the circumstances and in particular any increase or decrease in their assets and liabilities income.
Qualifying debt can be up to €20,000 and includes credit card debt, overdrafts or unsecured loans, utility bills and liquidated debts incurred other surety for another person (for example where a guarantee has been called in). Debt which will not qualify (i.e. excluded debt) includes liabilities under domestic support orders, debt owed to the state including under the household charge, rates, service charges, liabilities arising from a damages awarded by a Court and secured debt (e.g. debt secured by a mortgage)
Debt Settlement Arrangements (DSAs) – (greater than €20,000 unsecured debt)
DSAs will apply to unsecured debt involving amounts greater than €20,000. If the arrangement is accepted by the creditors and adhered to by the debtor over a five year period then the balance of the debtors debts, which are covered by the DSA, will be discharged. While a DSA is in effect, none of the debtor’s unsecured creditors, which are bound by the DSA (including any who voted against it), may take any action against the debtor.
It is envisaged that a debtor will apply for a DSA through an insolvency practitioner. If the insolvency practitioner satisfied that the debtor qualified Bill make an application to the insolvency service for a protective certificate. If satisfied that the debtor qualified involved with the roof but then applied to the circuit court, who if satisfied that the debtor qualified will grant the protective certificate. The protective certificate protects the debtor from any legal action by his unsecured creditors for a period of up to 110 days (subject to a creditors right of appeal) in order to prepare a proposed DSA, setting out how the creditors are to be paid and in what amounts, for approval by the creditors. A creditors meeting will then be held at which 65% in value of the creditors must vote in favour of the DSA in order for it to be approved.
To be eligible for a DSA, among other things, the debtor must have unsecured qualifying debt of greater than €20,000, be insolvent without any prospect of becoming solvent within five years and have been unable to agree alternative payment arrangement with their creditors. The debtor cannot be an un-discharged bankrupt, subject to a DRN or a PIA or a protective certificate within the last 12 months.
If the debtor adheres to the DSA for the period of five years, the debt covered by the DSA will be discharged, however, if the debtor defaults and obligations or is in arrears for six months or more the DSA will be terminated and the debtor once again becomes liable for his or her debts in full.
Personal Insolvency Arrangements (PIAs) (€20,000 to €3 million secured and unsecured debts)
The PIA process will coversecured and unsecured debt. To qualify for a PIA the debtor will have to show that it has engaged with his or her secured creditors prior to applying for a PIA. It will not involve an automatic write down of secured debt. A key provision in relation to PIA is that a debtor cannot be required to make a level of payment that would mean that the debtor, and his or her dependence, would not have a reasonable standard of living. [Given the prevalence of mortgage arrears and negative equity this process could prove popular with debtors in relation to mortgage debt in particular].
The PIA process will allow a debtor to pay creditors a portion of what is owed over a six or seven year period after which they will be discharged from any further liability. Much like the DSA process the debtor will have to engage in insolvency practitioner to apply to the court for a protective certificate. The protective certificate (subject to appeal by a creditor) can be issued for a period of up to 110 days in order to allow the debtor and the insolvency practitioner to agree the terms of the PIA with the creditors and hold a creditors meeting. The PIA cannot require the debtor to sell their principal private residence unless the insolvency practitioner on the opinion that it is disproportionate to the needs of the debtor and his dependence.
To be approved a majority of the creditors representing not less than 65% in value of the total of the debt must vote in favour of the PIA. In addition, 50% in value of the secured creditors must vote in favour and 50% in value of the unsecured creditors must vote in favour of the PIA. Once notified a creditor has 21 days to lodge an objection to the PIA in the Court and make an application to have it set aside.
The PIA must be reviewed annually and where there is a change in the debtor’s circumstances payment creditors can be increased subject to certain conditions. Where a debtor complies with the obligations in the PIA in the end of the six or seven year period they shall stand discharge from all the unsecured debts but only stand discharged of the secured debts which are specified in the PIA.