Q&A: New insolvency bill explained
Q: Will I be able to get debts written off without declaring myself bankrupt?
A: A number of new arrangements will be available, without having to declare yourself bankrupt in a court.
Q: What exactly is involved in getting mortgage debt written off?
A: People who have debts that they cannot pay - including mortgage debt and other personal debts - may be able to get a deal from their creditors. They will have to be in a situation where they are unable to ever again be in a position to meet the repayments. They would approach a personal insolvency practitioner (PIP) and honestly outline their financial situation. Every asset would have to be disclosed and the true extent of their income laid out.
The trustee, regulated by the State, would work out a plan. The new process is called a personal insolvency arrangement (PIA).
Q: Does the bank have the final say?
A: The PIP would put the plan to the bank. If those lenders who are owed most of the debt agree, then the plan will be put in place.
The plan is likely to see the consumer repay as much as they could for between five and seven years, with the likelihood that a chunk of the debt is written off. Mostly, it will be non-mortgage debt that is written off.
The family would probably be able to stay in their home. If they were to be turfed out by the bank, there would be little incentive for the family to meet the payments. After five to six years of the deal the family would be free of all their non-mortgage debt.
Q. What's in it for the bank?
A: With the personal insolvency arrangement, there is a good chance of the bank recovering a chunk of the debt over time without having to repossess the home or go through the costly bankruptcy process.
Q: What are the conditions?
Banks will have to agree to the deal, there must be no prospect you will recover financially, and you have to be honest about your finances. If you are not honest, then you could be pushed into bankruptcy.
Q: What about people with small amounts of debt that does not include a mortgage?
A: Consumers who have no income and no assets may be able to get their debts written off under what is to be known as a 'debt relief notice'. What they owe will need to be under €20,000. You approach MABS (Money Advice and Budgeting Service) about this.
If the insolvency service is satisfied, then a certificate will be issued. There will be a period when creditors will be unable to chase the person for money. After a year, the debts will be discharged.
Q: Any other options for those who do not want to go to court and who can manage their mortgage repayments, but not other debts?
A: For people who owe more than €20,000 in non-mortgage debt, there will be the option of a debt settlement arrangement.
You go to a personal insolvency practitioner (PIP). The trustee will check out your finances. If the state insolvency service agrees, then a protective certificate will be issued protecting you from your creditors for 30 days.
The debt deal will be put to the banks and other creditors.
If the deal is approved by creditors who are owed at least 65pc of the debt, then the arrangement is registered.
If the consumer keeps to the deal their debts will be discharged after the five to seven year term of the deal.
There will be yearly reviews of the deal by the PIP. A consumer would not be able to apply for another debt settlement arrangement within a 10-year period.