The Government has announced the establishment of a new State body, the insolvency service. It is envisaged that the agency will employ between 50 and 70 people. Recruitment has already begun for some positions. The insolvency service will oversee the personal insolvency processes outlined in the Bill, liaising with appointed debt advisers and the courts system. It will be funded by the exchequer
Less than €20,000
Prospective applicants must appoint an authorised debt adviser called an approved intermediary. In practice, this is likely to be Mabs (the Money Advice and Budgetary Service). When an approved intermediary is appointed the debtor must fill in a prescribed financial statement. The intermediary will help the borrower apply to the insolvency service. If satisfied, the insolvency service will issue a certificate and application to the court and the court, if satisfied, will issue a debt relief notice.
Once issued with a debt relief notice, creditors named on the notice cannot take any action to recover their money. The notice lasts for 36 months. At the end of the period, if a person’s circumstances have not changed, they will be freed from the debts specified in the notice. During the period, if the debtor received a gift or payment greater than €500, 50 per cent of it must be surrendered to the insolvency service for distribution.
Creditors can object to the notice being issued on certain grounds, though creditor consent is not required to give effect to a debt relief notice. Only one notice per lifetime is permitted. A debtor who applies for credit of more than €650 during the period must make known his/her status.
This option applies to people with non-mortgage debts, such as credit card, overdraft and unpaid utility and phone bills, of up to €2,000. To be considered in this category, the applicant’s total assets must not exceed €400 (which means property owners are excluded) and disposable weekly income should not exceed €60. Car ownership is permitted but vehicles must be worth no more than €1,200. Applicants must not have incurred 25 per cent or more of his/her qualifying debts within the previous six months. A debtor must be unable to pay their debts as they fall due. They must also have been domiciled in Ireland or at some time in the previous year been living or carrying on business in Ireland.
More than €20,000
People who think they may be eligible for some sort of five-year debt arrangement must appoint a personal insolvency practitioner (PIP). This person will advise and manage the process, and apply to the insolvency service for a certificate. If satisfied, the insolvency service will apply to the court, notifying the PIP to that effect. The court will then issue a protective certificate that will provide for a 70-day standstill period during which creditors may not take action. After contacting the creditors, the PIP will hold a creditors’ meeting and put forward the proposed debt settlement arrangement (DSA). Some 65 per cent of creditors must agree to the scheme. PIP fees will be met by both debtors and creditors, and most likely agreed at the creditors’ meeting.
Debt settlement agreements will provide a scheme of arrangement which proposes a “pay-back” plan to be worked out over five years. By definition, each agreement will be different. However, this may mean that debtors are required to see assets or release equity as part of some proposals. The agreement is legally binding and creditors cannot take legal action while the agreement is being fulfilled. The arrangement will be reviewed annually by the PIP to reflect any changes to the debtor’s financial circumstances. The agreement lasts for a five-year period, or in certain circumstances up to six and the outstanding debt is written off at that point. Only one application for a debt settlement agreement in a lifetime is permitted.
The second option applies to people who have some net income and assets but are insolvent and cannot pay the total amount of money they owe on non-mortgage debt. It would suit people who are struggling with their debts, and will allow them to set up a scheme of arrangement with their creditors to repay some amount of the debt over a five-year period, usually on a monthly basis. It does not apply to mortgage debt.
To be eligible, the person must be living in Ireland or at some time in the last year have been living or carrying on businesses in Ireland.
Up to €3m
The third option applies to people with problematic mortgage debts of up to €3 million spread across one or a number of creditors as well as an unlimited amount of unsecured debt. Prospective applicants would be expected to have enough income to repay a reasonable amount to their creditors. On mortgage debt, people would be obliged to have already gone through the existing Mortgage Arrears Resolution Process (Marp) with their bank. This does not necessarily apply to those in negative equity – only those who are experiencing serious difficulty in meeting their mortgage repayments.
Anyone considering this option needs to appoint a personal insolvency practitioner (though in reality a bank may have already suggested this at the Marp stage). The practitioner will examine and manage the case, and apply to the Insolvency Service for a protective certificate. The service will then approach the court for a protective certificate, which will give debtors a minimum 70-day protection period from creditors. The insolvency practitioner prepares a personal insolvency arrangement, taking into account the debtors’ ability to pay. It must compare the likely outcome for creditors with the outcome if the debtor was adjudicated bankrupt.
The personal insolvency arrangement may include a number of arrangements between debtors and their banks, such as “split mortgages” or “trade-down” mortgages. Creditors can appeal or object to the arrangement by lodging notice with the court. The arrangement is recorded in an insolvency register and available for public inspection. Debtors are not obliged to forfeit their home, but in some instances may decide to do so, or the personal insolvency practitioner forms an option that the costs of remaining in the home are disproportionately large. At the end of this six-to-seven-year process, the debtor will be discharged from his/her debts.