Option One
Under €20,000
Debt Relief Certificates for unsecured debts
John owes unsecured debts of less than €20,000. He applies to the Insolvency Service for a Debt Relief Certificate. Using an intermediary, such as the Money Advice and Budgeting Service, he fills out a form to show he has no assets worth more than €400, apart from a car worth no more than €1,200. His net monthly disposable income is below €60.
On successful application, he receives a Debt Relief Certificate. The debts he owes are frozen for a year and creditors are not able to pursue him. The details of John’s debts are recorded on an insolvency register and he is restricted from applying for further credit.
At the end of the year, if he is still unable to pay, John’s debt is written off. He must pay €90 for the service and he cannot apply for another certificate within six years. He is only allowed two such certificates in his lifetime.
If John owned his home, he would not be able to avail of this service.
Option Two
Over €20,000
Debt Settlement Arrangements for unsecured debts
Mary owes unsecured debts of more than €20,000. She can apply for a Debt Settlement Arrangement.
Her first step is to contact a personal insolvency trustee, who will help her complete a financial statement and apply to the Insolvency Service for a Protection Certificate. This certificate will prevent creditors from taking any action against Mary for 30 days.
Her creditors will be sent a debt settlement arrangement which will detail how Mary intends to pay them back the money she owes over a five-year period. She will offer to pay a percentage of what she owes.
For the arrangement to be approved, 65 per cent of creditors must agree to it. It will then be registered on the insolvency register.
After five years, if Mary has kept up the arrangements made, all of the debts covered under the arrangement will be discharged.
Mary does not need to be unemployed or on a low income to apply for this service and she can own her home. Her creditors have the legal right to challenge arrangements and have them annulled by the courts. And if Mary fails to keep up with the repayments, the arrangement will fail.
Option Three
€20,000–€3m
Personal Insolvency Arrangement for secured and unsecured debts
Michael has both secured and unsecured debts of over €20,000, including a mortgage on his home and a buy-to-let property, both in negative equity. Though he has income, he cannot pay his debts when they become due and he applies for a Personal Insolvency Arrangement.
He approaches a personal insolvency trustee who assesses his eligibility. Michael shows he cannot meet his debts, that he will not be solvent in the next five years, and will not be suitable for option two. The trustee decides he is likely to become solvent with the help of the scheme and is eligible.
The trustee applies to the Insolvency Service and a protection certificate is issued. This prevents his creditors from pursuing him for up to 60 days. His creditors are contacted by the trustee and given Michael’s financial details and proposals are made to pay off his debts.
Unsecured creditors are offered an agreed percentage of what they are owed, to be repaid over six years. The part of Michael’s mortgage in negative equity will be written off under the arrangement and his buy-to-let will be sold. If Michael owes money after the buy-to-let is sold, a percentage of that will be paid off over six years.
At least 55 per cent of unsecured creditors and 75 per cent of secured creditors must agree to Michael’s arrangement. If they do, it is registered in the Personal Insolvency Register.
Creditors will have the right to object to the arrangement at the Circuit Court and if Michael fails to keep up the repayments, the arrangement will fail.
If Michael sells his home and property prices have increased, some of the money written off will be clawed back by the lender. And if Michael wins the Lotto or receives an inheritance over the term of the arrangement, that will be taken into account. After six years, he will be clear of his unsecured debt.
Option Four
Judicial bankruptcy for secured and unsecured debt
If Louise has debts and has tried the other options and failed to agree arrangements with her creditors or failed to meet payments under any arrangements made, she may opt for bankruptcy.
Bankruptcy can be voluntary or involuntary, but under the new Bill, if she owes a debt of less than €20,000, her creditor will not be able to petition the court to make her bankrupt. Instead, the creditor will have to pursue other means to get the money owed.
If bankruptcy is the route to be taken, Louise or her creditors will apply to the court to petition for bankruptcy.
If the application is successful, all of Louise’s property will come under the control of the Official Assignee and she is likely to lose her home. Any money she earns will be used to pay creditors, after living expenses are deducted. She will have to notify the official assignee if she borrows money or goes on holiday.
Louise will be automatically discharged from bankruptcy in three years, but the court may make an order requiring her to make payments to creditors for a further five years. And the official assignee can prevent her being discharged if she has been unco-operative or dishonest.