In January this year, Minister for Justice and Equality Alan Shatter announced what I believe to be one of the most progressive pieces of legislation that we have seen for some time. The Personal Insolvency Bill 2012 will be welcome news to thousands of Irish people right now in that it deals with the financial difficulties of general insolvency, negative equity and mortgage debt.
If the Bill is approved in the Oireachtas, a state-operated Insolvency Service will be set up to run new non-judicial insolvency arrangements. Three voluntary debt-settlement systems will be put in place while the period of bankruptcy is likely to be reduced from the draconian 12 years to three years.
All of this is good news for struggling households and it means that if you are suffering with large debts, you may soon have some breathing room.
The first of the three voluntary debt-settlement systems deals with those who have unsecured debts worth under €20,000. If this is you, and you do not have assets with a total value of more than €400 and have less than €60 disposable income per month, you can apply to the new Service for a Debt Relief Certificate. This allows for a one-year moratorium period where creditors cannot pursue you for debts covered under the certificate. If, at the end of the year, you have not paid off the debt, it will be written off. As good as that sounds there is of course a catch. A single person can only apply for two debt certificates in their lifetime and the award of two certificates can only be six years apart. Regardless, this will allow those struggling with debts some time to get their house in order without the pressure of creditors breathing down their necks.
The second system deals with unsecured debt of over €20,000. Someone in this position can apply for a Debt Settlement Arrangement. To begin with, if you find yourself in this situation, you must prepare financial statements with the help of a personal insolvency trustee. Once complete, an application can be made to the Insolvency Service for a Protection Cert – while this is being prepared, debtors cannot move against you. It will take roughly 30 days. Once in place, the arrangement outlines how debt is to be repaid over a five-year term and is presented to your creditors. However, your plan can fall down if 65% of creditors do not approve the proposal – creditors can also challenge the arrangement and have it annulled by the Courts. Again, there is a limit on how many times an individual can apply here – in this instance, just one Debt Settlement Arrangement is permitted in a ten-year period.
The third and final proposal applies to those with secured and unsecured debts of between €20,000 and €3m and is known as a Personal Insolvency Arrangement. You can apply here even if you have income but are unable to pay your debts as they fall due. A personal insolvency trustee will decide if you fall into category two or three – in this case, you must show that you will be insolvent for a period of five years. While preparing a certificate under this proposal, creditors cannot pursue you for 60 days. Unsecured creditors are then offered an agreed percentage of what they are owed, which will be repaid over six years. If you are in negative equity, this amount could well be written off under this arrangement. 55% of unsecured creditors must agree to the terms, while 75% of secured creditors must get behind your plan before it can be enforced. However, if you sell your home during the six-year period and it fetches more than you expected, this will be taken into account and any amount that was written off can be adjusted. The same rules apply if you inherit a large sum during the six-year term. Because of the magnitude of debt the Personal Insolvency Arrangement deals with, it is no surprise that it is a once-in-a-lifetime deal.
These proposals will certainly help those struggling with debts and may stave off bankruptcy for many. However, if every avenue fails under the proposed new agreement, judicial bankruptcy is still an option. The new Bill provides ways to avoid it and if implemented correctly, it could help thousands of Irish people suffering under the weight of their debts.