Bankruptcy is a process where the ownership of an insolvent person’s property transfers to the Official Assignee in Bankruptcy to be sold by him for the benefit of those to whom the individual owes debts (creditors). It generally requires debts to be in excess of €20,000 and includes both secured debt and unsecured debt.

Bankruptcy proceedings are brought in the High Court. The application for a Bankruptcy Order is filed in the Office of the Examiner of the High Court. When the person’s property is sold, the Official Assignee will make sure that the proceeds are shared out fairly among creditors and any outstanding debt will be written off. Bankruptcy normally lasts for 3 years.

Prior to making yourself bankrupt, you must have made reasonable efforts to have made use of the alternative arrangements such as: – Debt Relief Notice (DRN), Debt Settlement Arrangement (DSA) or a Personal Insolvency Arrangement (PIA).

Main Impact of Bankruptcy

  • Your property transfers to the Official Assignee.
  • You have a duty to contribute from surplus income (income less reasonable living expenses) towards your debts for up to 5 years.
  • You are discharged from bankruptcy after 3 years.
  • All your debts are written off.

The Family Home
Your interest in your family home will transfer to the Official Assignee along with all other property as part of the bankruptcy process. You may not necessarily lose your family home if a schedule of agreed repayments can be made between the lender and the official Assignee (which are not outside reasonable living expenses approved by the OA). If the OA wishes to sell the family home, then a High Court application must be made. A decision will be made by the Courts having consideration for the impact of the sale on the creditors as well as the individual’s dependent on the bankrupt individual. If there is no equity in the family home, it won’t be of an immediate interest to the OA to sell.

Property Abroad
When an individual is bankrupt in Ireland, the proceedings maybe recognised across all other European Member States (except Denmark). Under the European Community Insolvency Regulation, the OA has the right to sell any foreign property for the benefit of the creditors.
There are a number of duty and obligations to be met in connection with bankruptcy. There are forms to be completed, High Court appearances to be made, interviews to attend and a number of other legal requirements to be complied with. While an individual may make the necessary petitions themselves, it is strongly recommended that appropriate professional advice be sought.

The information contained above is intended as a general guide to the subject matter, it should not be used as a basis for decisions. For this purpose advice should be obtained which takes into account all the individual’s circumstances from suitably authorised professionals. Every effort has been made to ensure the accuracy of the information. We are unable to accept liability for any errors or omissions which may arise.



Personal Insolvency

Personal Insolvency – what is at all about and how does it work?

In July 2013, the new personal insolvency legislation was introduced in order to assist individuals deal with their debt in a legal and formal manner. Since the introduction of the new legislation, there has been just over 500 applications made to avail of the options available.
If you are unable to pay your debts and do not see yourself being able to do so in the next few years there are now 4 debt solutions which may help you. Which option will depend on how much you owe, the type of debt, your income and your assets.

1. DRN – Debt Relief Notice
The DRN process enables eligible insolvent debtors to write off their debts where they can prove they are not in a position to repay them and it is unlikely their financial situation will improve in the next 3 years.

This process is suitable for individuals with
– Unsecured debt of up to €20,000
– You have a net monthly income of €60 or less per month – after deducting reasonable living expenses
– Assets of not more than €400
The main effect in getting a DRN is that it creates a “break” period of 3 years during which time creditors can’t take action to recover or enforce the debts listed in the DRN. You are not required to make any payments to the creditors in respect of debts that are included in the DRN. After the 3 year period, provided you have complied with the Act, the debts covered in the DRN will be written off in full.

A DRN must be arranged by an Authorised Intermediary (AI).

2. DSA – Debt Settlement Arrangement
This is suitable for:-
– Unsecured debt over €20,000
– There are no limits in respect of income or assets
Secured debts cannot be covered in a DSA. Certain unsecured debts cannot be included and certain debts require the consent of the creditor before they can be included.

A DSA must be formulated by the PIP, agreed by the debtor, approved by a qualified majority (65% in value) of creditors voting at a creditors’ meeting, processed by the Insolvency Service of Ireland (ISI), approved by the appropriate Court and details of it registered on a public Register maintained by the ISI.

The benefit of a DSA is that it will protect a debtor and his/her assets from legal proceedings and other actions which could otherwise be taken by unsecured creditors during the period the DSA is in force.

Under a DSA, a debtor’s unsecured debts subject to the DSA, will be settled over a period of up to 5 years (extendable to 6 years in certain circumstances).Once a DSA is successfully completed, it will discharge the debtor from his/her unsecured debts which are subject to the DSA, at the end of the period.

3. PIA – Personal Insolvency Arrangement

A PIA will cover both secured debt up to €3 million and unsecured debt and there are no limits in respect of income or assets. This arrangement is different to the others schemes as it can include debt relating to a mortgage (secured debt), which the other options don’t include. There are some restrictions with regard to debts which can’t be included and again, some debts may require the consent of the creditor before they can be included. The arrangement must be carried out by a PIP.

The main effects of a PIA agreement are:-

– unsecured debts will be settled over a period of up to 6 years (extendable to 7 years in certain circumstances) and the debtor will be released from those unsecured debts at the end of that period.
– Secured debts can be restructured under a PIA (e.g. to provide for payments for a certain period or a write-down of a portion of negative equity). A PIA will protect a borrower and his/her assets from legal proceedings, including enforcement of security during the time the PIA is in force.

Once a PIA is successfully completed, it will discharge the debtor from his/her unsecured debts which are subject to the PIA. In respect of the secured debt, depending on the term of the PIA, a borrower may be released from a secured debt at the end of PIA period or the secured debt can continue to be payable perhaps on restructured terms.

For anyone in debt, the question as to the costs involved are a big issues. The DRN process is carried out by a AI. There is an application fee of €100 (payable to ISI). Approved intermediaries are not permitted to charge a debtor a fee for carrying out its functions under the Personal Insolvency Act 2012.
In relation to a DSA and PIA, these services must be carried out by a PIP. A PIP must at the outset of the process provide you in writing with details of the fee arrangements and likely costs involved. You will not normally be expected to pay fees to the PIP directly. The fees and cost can be expected to form part of the arrangement and creditors will have an opportunity to vote on them. The ISI will charge a separate application fee of €250 for DSA and €500 for PIA.

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Mortgage Arrears Resolution Process

Mortgage Arrears Resolution Process (MARP)

Under the Code of Conduct on Mortgage Arrears (CCMA), lenders must operate a Mortgage Arrears Resolution Process (MARP) when dealing with arrears and pre-arrears customers. This requirement was introduced in January 2011, but the rules changed in July 2013 with the introduction of the Personal Insolvency Legislation.
There are 4 steps involved in the MARP:- Communication, Financial Information, Assessment and Resolution.

The area of Communication sets out the information that the lender is required to inform you of in writing and includes details on:

  • The status of the mortgage account.
  • Full details of the payment(s) missed and the total amount now in arrears.
  • It must also explain that your arrears are now being dealt with under the MARP; the importance of cooperating with the lender; the consequences of non-cooperation; and the impact of missed repayments/repossession on your credit rating. The potential for legal proceedings and loss of your property, and an estimate of the costs to you of such proceedings
  • The importance of taking independent advice
  • That even if your property is sold, you will remain liable for any outstanding debt, including any accrued interest, charges, legal, selling and other related costs.
  • For as long as you are in arrears, the lender must give you a written update of the status of your account every 3 months.

Financial Information and Assessment
In order for lenders to identify the best course of action for a mortgage holder in arrears, they must get and assess the financial position of the borrower. You will be given a “Standard Financial Statement” (SFS) to complete. When you get the financial statement to complete, the lender must make sure that you understand the MARP process. They should offer to help you to complete the SFS as well as let you know about where you can get independent advice. You should be given enough time to gather the information you need to complete the SFS and they must give you a copy of the completed statement. You may need to provide supporting documentation to verify the information in the SFS.

The SFS is then passed on to its own Arrears Support Unit (ASU) for assessment. The ASU must assess the completed SFS in a timely manner and examine your case on its individual merits. The ASU must base its assessment of your case on your full circumstances. When the assessment is complete, the lender must consider all options for alternative repayment arrangements.
These options may include:
• Paying interest only, or interest and part of the capital, for a period
• Permanently or temporarily reducing the interest rate
• Deferring repayments (or part) for a period
• Extending the mortgage term
• Changing the type of mortgage
• Adding arrears and interest to the principal
• Equity participation (reduction of principal, with transfer of part of your equity)
• Warehousing part of the mortgage (including through a split mortgage)
• Reducing the principal
• A “deferred interest” or other voluntary scheme

The lender may require you to change from an existing tracker mortgage to another mortgage type if it concludes that none of the options that include keeping your tracker are appropriate or sustainable for you.

Information and advice on alternative arrangements

As part of the Mortgage Arrears Information and Advice Service, your participating lender will pay €250 for a consultation with an accountant of your choice drawn from a panel. CACM Accountants are on this panel of Accountants.

When the lender is offering an alternative repayment arrangement, they must give you a clear written explanation of the arrangement. As well as the basic details of the new repayment amount and the term of the arrangement, the lender must explain its impact on the mortgage term, the balance outstanding and the existing arrears.

What happens of an alternative arrangement is not agreed

In some circumstances, it may not be possible to for you and the lender to reach an agreement on an alternative repayment arrangement. A lender may not be willing to offer an alternative arrangement or they may offer you an alternative arrangement, but you may choose not accept it.

If this happens, you will now be outside the MARP, and repossession proceedings can start after three months. The three months will give you time to consider other options, such as voluntary surrender, voluntary sale or a Personal Insolvency Arrangement. You can also appeal the lender’s decision under the CCMA’s appeals process. Independent financial and legal advice should be sought.

The information contained above is intended as a general guide to the subject matter, it should not be used as a basis for decisions. For this purpose advice should be obtained which takes into account all the individual’s circumstances from suitably authorised professionals. Every effort has been made to ensure the accuracy of the information. We are unable to accept liability for any errors or omissions which may arise.