Tipp FM Legal Slot – 29th January 2013
John M. Lynch Introduction to Personal Insolvency Act 2012[soundcloud id=’167065314′]
We spoke before Christmas about the Personal Insolvency Bill. The Bill was signed into law on St. Stephen’s day. How can people who are burdened with debt benefit from the Personal Insolvency Act and how can the measures work in practice?
The Personal Insolvency Bill was published on 29th June 2012 and was signed into law by President Higgins on 26th December 2012.
It is estimated that over 80,000 people are in arrears with mortgage and other property loans with many thousands more struggling to make their monthly payments. The Bill gives struggling homeowners the opportunity to write down the debt on their mortgages by spreading it over a six year period. The Bill also reforms the Bankruptcy Act 1988 and a significant new measure under the Bill is to reduce the bankruptcy period from 12 years to 3 years (8 years in some cases).
Recent figures show that 11% of all home loans have fallen into arrears by 90 days or more with many thousands more struggling to make their monthly payments.
The Personal Insolvency Act 2012 will help people to manage personal debt through budgeting advice and new arrangements with lenders and it will assist personal or mortgage debtors. The deals will be dealt with on a case by case basis and creditors, such as banks, will have to agree, but up to a quarter of all Irish mortgage debt could be written down under the new proposals.
How the measures can work in practice…Our Approach to Debt Management
We have added new services to help clients deal with insolvency issues and we offer expert advice on the new measures.
As a team, we have continued to improve our expertise and I recently completed a Diploma in Insolvency and Corporate Restructuring and Andrea Gleasure completed a Certificate in Banking Law.
One of the most important factors at this stage is for people to be aware of exactly what loan arrangements are in place with each lender and what powers your lender has to enforce these. In preparation for these new laws we have been assisting many clients in carrying out full audits to ensure all proper procedures were followed by the lender at the time the loan was entered into. Any errors on their part could prove to be useful in negotiating the debt downwards at a later stage.
We will negotiate, on behalf of clients, with banks, credit card companies, Credit Unions and other creditors to agree reduced repayments which they can realistically afford.
What new measures/arrangements are in Personal Insolvency Act to assist people who cannot meet repayments?
The Personal Insolvency Act will assist personal or mortgage debtors and new arrangements include:
A Debt Relief Certificate will allow people with no assets or no income with debts of less than €20,000 to be written off. These debts are likely to be credit card debt and personal loans. The Bill establishes an insolvency service which will administer debt relief options. In order to qualify borrowers must have a net monthly disposable income of €60 or less, assets of €400 or less, and must be resident in Ireland. Net disposable income includes salary or wages, welfare benefits such as job seekers allowance, income from pension, rental income and contributions from other household members. Certain debts are excluded including court fines, child support and spousal maintenance.
A Debt Settlement Arrangement (DSA) will cover loans with two or more creditors in the amount of €20,000 or more. The borrower will have to pay off a certain amount for up to 5 years and the balance will then be written off.
A Personal Insolvency Arrangement (PIA) will apply specifically to mortgage holders for secured and unsecured debts of €20,000 to €3million. 65% of the lenders must be in agreement for some of the debt to be written down. A borrower could have the option of handing back their property and paying part of the balance in monthly instalments over 6 years and the remainder would then be written off.
What will be the role of a Personal Insolvency Practitioner and who would set the amount that could be written off?
Personal Insolvency Practitioner
A personal insolvency practitioner licensed will make the proposal on behalf of the borrower provided the borrower themselves satisfy a number of criteria i.e. must be living in the State for a year before the date of application or domiciled here, the property which the loan was taken out for must be within the State, the borrower must be unable to pay their debts as they fall due and not have been declared bankrupt etc. The practitioner will also verify and certify a financial statement prepared by the borrower confirming their financial position.
The Insolvency Service
The amount which may be written off will be determined by a new body called The Insolvency Service with reference to the amount of outstanding debt the borrower has, the borrower’s income and the value of the assets they own while leaving the borrower with funds to allow a reasonable standard of living while repayments are being made. The practitioner here will prove to be a vital party who will form the link between the borrower, the Insolvency Service and the lender(s) in coming to an agreement as those who hold a 65% or higher stake in the borrower’s debt must agree to proposals.
Do people who have personal or mortgage debt have to satisfy any conditions to avail of a Personal Insolvency arrangement?
Communicate with Your Lender
The old adage of the “once in a lifetime opportunity applies” and it is important to be aware that those who avail of a Personal Insolvency Arrangement can only do so once. Careful consideration needs to be given by those who wish to seek debt relief in this manner.
For those people in debt for mortgages on their homes it is very important to be aware that this arrangement will only be available if they have been engaging with their lender for at least six months prior to their application. Co-operation and negotiation are therefore key to the success of any such application and those who ignore their arrears will not be able to avail of the new arrangement.
It is vital therefore for those who may wish to avail of them to be seen to be actively corresponding with their lenders if not doing so already.
At this stage what advice do you have for people who are struggling with their mortgages and other debt?
There has never been a better time for this new approach to debt with so many businesses closing and mortgages struggling, not because of the greed or incompetence of borrowers, but because of over-lending, falling wages, unemployment and a collapse in demand for goods and services. Over the last number of years people have been putting the problem on the long finger. This is not in any way unexpected due to all the media and government hype to the effect that our financial woes are being addressed. It has become more than obvious that the present credit difficulties are here to stay for a considerable amount of time into the future.
All the strategies of postponing debt by deferring interest or capital payments are no longer a realistic approach. We have taken the view that it is now time to deal with debt management in the context of long-term debt with long-term solutions. With this in mind our strategy is twofold – firstly establish the amount of debt which you are capable of servicing and, secondly, put whatever strategies into place to deal with the balance which are realistic.