Insolvency is the inability to pay your debts as they fall due.
Previously in Ireland, if you were unable to pay your debts bankruptcy could protect you from your creditors. The process was very cumbersome as all your assets and financial affairs were controlled by the Bankruptcy Court for 12 years.
Under the Personal Insolvency Act 2012 three new debt resolution mechanisms were developed for people who cannot pay their mortgage and other personal debts as they fall due.
The three debt help mechanisms are as follows:
1. Debt Relief Notice
This is a debt forgiveness mechanism that allows for the write off of debt up to €35,000.00 after a three-year supervision period. It provides debt relief for people who have no disposable income and no prospect of being able to pay off their debt in the next three years. At the end of the three years all of the debts covered by the debt relief notice will be written off even if you have not managed to pay anything. To avail of this process, your application must be made through an Approved Intermediary and a list of these is published by the Insolvency Service of Ireland. A few Money Advice and Budgeting Services (MABS) have also been authorised to act as Approved Intermediaries and they began screening applicants in September 2013.
2. Debt Settlement Arrangement
This allows for the agreed settlement of unsecured debt with no limit normally over a five-year supervision period. Unsecured debt is debt that is not secured against property that can be sold forcibly to pay off the debt. You must make some payments to your creditors in return for a discount on your debts. The debt settlement arrangement is a voluntary arrangement and it will have to get the support of creditors representing at least 65% of your total debt. When the agreed period ends and if your debt settlement arrangement has operated successfully, you will be discharged from the debts that are covered. For a debt settlement arrangement, you must apply through a Personal Insolvency Practitioner and a list of these is published by the Insolvency Service of Ireland.
3. Personal Insolvency Arrangement
This allows for the agreed settlement of secured debt up to €3 million and unsecured debt with no limit involved and is normally over a six-year supervision period. The cap of €3 million can be increased by agreement with your secured creditors and the limit of six years can increase to seven years in some situations. The personal insolvency arrangement works like the debt settlement arrangement. However, in addition, over 50% of your secured creditors and 50% of your unsecured creditors must vote in favour. When the agreed period ends and if your personal insolvency arrangement has operated successfully, you will be discharged from the unsecured debts that it covered but the secured debt will only be discharged to the extent specified in the personal insolvency arrangement. You must apply for a personal insolvency arrangement through a Personal Insolvency Practitioner.
You can only be involved in one of the new debt resolution mechanisms and you must not deliberately stop paying your creditors. You will need to complete a financial statement outlining your financial circumstances and you must sign a Statutory Declaration to say that you have given full and honest disclosure of your financial circumstances.
You should make contact with a Personal Insolvency Practitioner who will send your application to the Insolvency Service. The Insolvency Service will check that all the details are in order. If so, they will send all the necessary documentation to the relevant court (i.e. to the Circuit Court in cases up to €2.5 million and to the High Court in larger cases). The Court will review all the documentation and if everything is in order, will issue a protective certificate. The Personal Insolvency Practitioner will then notify all of your creditors of the protective certificate and of your intention to avail of a debt settlement arrangement. The protective certificate will give you 70 days during which your creditors cannot start or continue legal proceedings, enforce a judgment or contact you about the debt.
When a protective certificate is issued, your creditors must be given your Prescribed Financial Statement. A debt settlement arrangement will be formulated by your Personal Insolvency Practitioner and once you have consented to the proposal, your Practitioner must call a creditor’s meeting. The creditors will vote on whether or not to accept the proposed arrangement. If the creditors reject the proposal, the protective certificate ceases to have effect and the process will have come to an end. If the proposal is accepted, the Personal Insolvency Practitioner must inform the Insolvency Service and the Insolvency Service notifies the court. If there is no objection, the court approves the Debt Settlement Arrangement if it is satisfied that all the conditions have been met. The Insolvency Service records the Debt Settlement Arrangement in its Register and it comes into effect.
If you don’t comply with the arrangement, you will become fully liable for all specified debts, including any arrears that have accrued together with any charges and interest that have accrued during the debt settlement arrangement, less any payments made by you during that time, unless the terms of the debt settlement arrangement specify, or the court has ordered, otherwise. If the arrangement is successfully completed, you are discharged from the unsecured debts covered by the debt settlement arrangement and the secured debts to the extent provided in the agreement. The successful completion is recorded on the Register and you will now be solvent.
The costs of the Personal Insolvency Practitioner will need to be paid. Some practitioners require the insolvent person to pay at the beginning whereas others will begin work in the hope that they will persuade the creditors to pay their costs. The Insolvency Practitioner will outline all of this at the beginning.