25 January 2012 was the date the PI Act came into being. It was later updated the following year but essentially even if you wish to go the bankruptcy route, you have to go through a Personal Insolvency Practitioner (PIP) to assess the justification and obtain a letter from the PIP stating that you are not eligible for a PIA or DSA.
Struggling debtors will be able to write-down a portion of their mortgage debt under laws published by the government in 2013.
As well outlining new non-judicial debt settlement arrangements, the Personal Insolvency Bill also reduces the period for the automatic discharge from bankruptcy from 12 years to now one.
The reform of Ireland’s bankruptcy laws was a condition of the EU/IMF bailout agreement and the one year discharge period is now in line with recommendations made by the Law Reform Commission (LRC) in 2010.
Under the proposals unveiled by Justice Minister Alan Shatter today a new Personal Insolvency Service will be established to process three separate types of non-judicial arrangement. But how will they work in practice?
1) Debt Relief Notice (DRN)
This will provide for the forgiveness of unsecured debt (such as an overdraft or credit card debt) under €35,000 for debtors with little or no capacity to pay off debts. The debtor will apply to the Insolvency Service who will examine the income and outgoings of the applicant and decide whether a DRC is appropriate. If granted, a one year moratorium period will apply during which creditors cannot pursue action against the debtor for the debts covered by the DRC. At the end of the one year moratorium period the applicant is discharged from the debts.
2) Debt Settlement Arrangement (DSA)
This provision also covers unsecured debt but is concerned with debts above €20,000. In this case the Insolvency Service would design a plan where the debtor would pay a specified amount to creditors over a five-year period after which the debts would be discharged. The creditors would be required to approve the DSA agreement.
3) Personal Insolvency Arrangement (PIA)
This arrangement is designed to cover both secured and unsecured debt and will be appropriate if the Insolvency Service conclude that a five-year DSA would not be sufficient make the debtor solvent. Under this provision a portion of the unsecured debt would be written off and repaid over a six-year period. The secured debt, a mortgage for example, would also be written down and its repayment period extended, reducing the repayments further. The creditors would also be required to approve the PIA and should the debtors financial circumstances improve over the course of the PIA they are obliged to notify the Personal Insolvency Service.
John Lowe is authorised by the Insolvency Service of Ireland to carry on practice as a personal insolvency practitioner