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Tuesday 26 September 2017

Changes to personal insolvency laws aim to chart an agreed path out of debt for people

Aisling Meehan

There are lots of bankrupt people in Ireland, and indeed in the agri-sector. They divide roughly into two camps – those who owe more money than they will ever be able to pay back and those who are owed more money than they are ever realistically going to collect.

New laws have been introduced to help both cases. This personal insolvency legislation is due to kick in from June.

The main change will mean people can be discharged from bankruptcy after three years rather than the current 12-year period. It also allows for:

1.The write off of debts of up to €20,000, subject to a three-year supervision period. This is known as a Debt Relief Notice.

2.The settlement of unsecured debts over a period of five years (Debt Settlement Arrangements).

3.The settlement of secured debts of more than €3m over a period of six years (Personal Insolvency Agreements).

Debt Relief Notices

To be eligible for this you must satisfy the following conditions:

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nNet monthly disposable income must be €60 or less. This is after deductions for reasonable living expenses and payments to cover certain debts that might be excluded from the process, such as debts under family law orders or money owed to the State. All income with the exception of child benefit is taken into account.

nThe total value of your assets must be €400 or less. Assets do not include essential household equipment and appliances, tools/equipment needed for employment up to a total value of €6,000, one motor vehicle up to a value of €2,000 or specially adapted for a person with a disability and pension assets.

nThere must be no realistic prospect of paying your debts within the following three years.

nYou cannot have incurred more than 25pc of the debts in the previous six months. In addition, you cannot enter into any transaction at an undervalue or have given a preference to any person in the previous two years.

You need an approved intermediary to apply for a Debt Relief Notice. This would usually involve someone from the Money Advice and Budgeting Service (MABS). You must disclose all of your financial affairs to this person before completing a Prescribed Financial Statement.

If all is in order, the Insolvency Service will notify the Circuit Court. The Court will then notify the relevant creditors of the Debt Relief Notice. The creditors can appeal inclusion in this to the Circuit Court.

You will then be subject to supervision for three years, during which creditors are not allowed to pursue you for debts owed. The creditor can only take action against another person who guaranteed the debt.

During this period, you are obliged to tell the Insolvency Service of any change in your circumstances. Even if you receive a gift worth €500, you must surrender half to the Insolvency Service.

At the end of the supervision period (or earlier if you pay half of the total amount owed), you are discharged from all the relevant debts and your name is removed from the register.

Debt Settlement Arrangements

A Debt Settlement Arrangement must be processed through a Personal Insolvency Practitioner (PIP) such as a solicitor or accountant, with licensing of PIPs expected to commence in April/May 2013.

If the application is successful, the Circuit Court or High Court will issue a protective certificate that protects the applicant from legal proceedings by creditors for up to 110 days. During this time, the PIP then notifies each of your creditors of the intention to make a proposal for a Debt Settlement Arrangement.

They can submit a proposal on how the debts might be dealt with as part of a Debt Settlement Arrangement. The creditors must be given your Prescribed Financial Statement.

The Debt Settlement Arrangement will not require you to dispose of your principal private residence or assets necessary for your employment unless you agree to such a sale.

You must be left with enough income to maintain a reasonable standard of living for yourself and your dependents. When a proposal for a Debt Settlement Arrangement has been made, the PIP must call a creditors meeting and the creditors must vote on whether or not to accept the proposed arrangement.

PROPORTIONAL

Each vote is proportional to the amount of the debt owed to that creditor and the arrangement is accepted if creditors representing 65pc of the value of the debt vote in favour. If the creditors reject the proposal, the protective certificate ceases to have effect and the process fails.

If the creditors accept the proposal and if you keep to the terms of the agreement (maximum duration generally five years), your remaining debts at the end of that period will be discharged and your name removed from the registrar.

However, if you fall into arrears for more than six months, the Debt Settlement Arrangement ceases and you become liable for all the debts and arrears, interest or charges that have built up in the meantime.

Personal Insolvency Arrangements

The procedures for applying for Personal Insolvency Arrangements are similar to that of Debt Settlement Arrangements. But they differ in that it must involve at least one secured creditor, such as a bank.

The secured creditor must provide an estimate of the value of the security. They can apply for the full value of the security or the full amount of the debt if a property is sold. The arrangement is accepted if secured and unsecured creditors representing 65pc of the value of the debt vote in favour of the Personal Insolvency Arrangement, or if more than 50pc of the secured or unsecured creditors vote in favour.

If the Personal Insolvency Arrangement (maximum duration generally six years) is successfully completed, all unsecured debt is discharged but secured debt is discharged only to the extent specified in the arrangement.

Disclaimer: Aisling Meehan, solicitor, tax consultant and Nuffield Scholar, does not accept responsibility for errors. Email aisling@agriculturalsolicitors.ie

Irish Independent



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