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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