Personal Insolvency Arrangements
A Personal Insolvency Arrangement (PIA) is one of 3 debt resolution mechanisms introduced by the Personal Insolvency Act 2012 for people who cannot afford to pay their personal debts. These mechanisms offer different solutions to people in different situations.
The Personal Insolvency Arrangement applies to the agreed settlement and/or restructuring of secured debts up to a total of €3 million (as well as unsecured debts) over a period of 6 years. The cap of €3 million can be increased by agreement with your secured creditors and the limit of 6 years can increase to 7 years in some situations.
This document describes how to qualify for a PIA and how the PIA process works.
The Insolvency Service of Ireland (ISI) has published detailed information about PIAs, including possible scenarios, FAQs and a guidebook. It also provides extra information on PIAs, including a quick guide (pdf), on its website backontrack.ie, aimed at people who are struggling with debt.
You can read a general overview of personal insolvency options here.
Provision for court review
A series of measures announced on 13 May 2015 included changes to the personal insolvency system. All of these changes are now in effect. They include court review where a mortgage lender rejects the borrower’s proposal for a PIA.
This review option only applies to mortgages that were in arrears on 1 January 2015, or to mortgages that were in arrears before that and where the borrower entered into an alternative repayment arrangement.
As part of Abhaile, the national Mortgage Arrears Resolution Service, a new aid and advice scheme for people in serious mortgage arrears covers free legal representation for eligible borrowers in seeking such a court review.
The court will review the application, including any objections made by creditors. Subject to meeting certain criteria set out in the legislation, the judge may impose the original PIA proposal on the creditor(s).
Am I eligible?
Personal Insolvency Arrangements provide for the agreed settlement and/or restructuring of debts in the case of people who have secured debts up to a total of €3 million (as well as any unsecured debts) and have no prospect of being able to pay off their debts in the next 5 years.
You can only avail of a PIA once in your lifetime. You cannot get a PIA if you are involved in one of the other debt resolution processes introduced by the Act, or in the bankruptcy process, or if you have completed one of these processes within the last 5 years (3 years for a Debt Relief Notice).
Under the original legislation, you could only get a PIA by agreement of a specified majority of your secured and unsecured creditors – see Main elements of a PIA below. However, as noted above, you can now seek a court review if a mortgage lender rejects your personal insolvency proposal. See ‘Creditors’ meeting’ below for more detail.
You must be domiciled in the State, or else have been living or had a place of business in the State within the year before you make your application.
You will only qualify for a PIA if you owe debt to at least one secured creditor holding security over Irish property or assets (secured debt). If you have no secured debts you should apply for a Debt Settlement Arrangement or a Debt Relief Notice. In general, the total of your debt to your secured creditors must add up to less than €3 million. However, this cap can be waived if all of your secured creditors agree in writing.
At least three-quarters (75%) of your debts must have built up at least 6 months before you apply for a PIA – in other words, you can’t apply for a PIA if any more than 25% of your debts were incurred in the last 6 months.
Secured and unsecured debts
A Personal Insolvency Arrangement is only for people who have secured debts (though it can include some unsecured debts – see below) so it is important to know whether your debts are secured or not.
A secured debt is a loan on which property or goods are available as security against non-payment. Mortgages and car loans are the most common secured loans.
Some examples of unsecured debts are: utility bill arrears (gas, electricity etc.); credit card debt; bank overdrafts; credit union loans. However, if they are rolled up into your mortgage, they become secured loans.
Excluded and excludable debts
The Personal Insolvency Act 2012 specifies certain types of debt that cannot be written off by the debt settlement procedures that it introduced, which include the Personal Insolvency Arrangement. These are called excluded debts.
The Act specifies certain other types of debt to be excludable from a PIA. This means that they can be covered by the PIA if the creditor is asked and agrees to let them be included – in which case they become permitted debts – debts that the creditor permits to be covered. If the creditor is asked and does not respond, the creditor is also deemed to have consented to the debts being included. Most types of excludable debts are those owed to the State.
The types of debt that are excluded and cannot be covered by a PIA are:
- Debts under family law orders, such as maintenance orders for spouses and children
- Debts due under court awards for personal injury or death
- Debts arising from a loan (or forbearance of a loan) obtained through fraud or similar wrongdoing
- Debts arising under court orders made under the Proceeds of Crime Acts or fines imposed by the courts for criminal offences
The types of debt that are excludable and may be covered if the creditor agrees are:
- Taxes, duties, charges or levies owed to the State, such as income tax, the Local Property Tax, VAT, capital taxes
- Service charges owed to local authorities
- Money owed under the Nursing Homes Support Scheme (in respect of a loan advanced by the HSE to a nursing home resident to cover the amount due from the principal private residence)
- Money owed to the Department of Social Protection, such as overpayments
- Debts due to owners’ management companies in respect of annual service charges or contributions due for multi-unit developments (this is the only non-State debt in this category)
Mortgage arrears on your home
In general, you must declare that you have co-operated with your mortgage lender for at least 6 months in respect of your principal private residence (your home) in accordance with the Central Bank’s Code of Conduct on Mortgage Arrears; and that, in spite of this co-operation, you have been unable to agree an alternative repayment arrangement or the lender has confirmed in writing that it does not wish to enter into such an arrangement.
This rule does not apply if your Personal Insolvency Practitioner (PIP) – see below – declares that you would still not be likely to be solvent in 5 years if you accepted such an alternative repayment arrangement.
Further information for people facing mortgage arrears is available on keepingyourhome.ie.
Main elements of a PIA
You must make your proposal for a PIA through a Personal Insolvency Practitioner (PIP) – see The PIA process below.
Once you have agreed the terms of the PIA proposal with your PIP, you then need approval from a creditors’ meeting or, failing that, your proposal may be imposed on your creditors after a court review. See ‘Creditors’meeting’ below’ for more detail.
A PIA may involve you making regular payments of agreed amounts to your Personal Insolvency Practitioner, who then distributes them to your creditors according to the terms of the PIA.
Your creditors may not take any action against you to enforce the debt during the lifetime of the PIA. If you keep to the terms of the PIA, the rest of your debt to your unsecured creditors will be discharged. However, when the PIA ends, you will still be liable for the outstanding amount of your secured debts, such as your mortgage.
The PIA has been designated as an insolvency proceeding which can benefit from cross-border recognition. This means that a debtor availing of a PIA will gain the same protection against creditors in most other EU countries that they receive in Ireland, subject to and in accordance with the Regulation on Insolvency Proceedings (EC) No 1346/2000 (pdf), as updated by Regulation (EU) No.663/2014 (pdf). Read more in this press release.
Mandatory terms of a PIA
There are certain elements that the PIA must contain:
- The maximum duration of the agreement must be 6 years but this may be extended by up to 1 year in circumstances as specified in the terms of the arrangement
- The PIA must clearly distinguish between secured debts and unsecured debts and must make provision for the manner in which the security held by the creditor is to be treated. Unless your secured creditors agree otherwise, they may get the full value of their security or the full amount of the debt if the property is sold. If they agree to accept less than the full value of the security, there is a clawback if the security is sold for greater than the value estimated at the time of the arrangement.
- If you keep to the terms of the agreement your remaining debts to your unsecured creditors will be discharged
- You remain liable for certain debts unless the proposed arrangement explicitly provides for a compromise agreement and the creditor has agreed in writing to accept this – see ‘Excluded and excludable debts’ above
- The PIA cannot release you from fines or other monetary penalties arising from criminal offences
- It cannot require you to sell any assets that are reasonably necessary for your employment or business 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 dependants
- It must not require you to dispose of your principal private residence (your home) or to cease to occupy it unless specific conditions are met – see ‘Secured creditors’ below
- It must outline how your debts will be treated in the event of your death or mental incapacity
- It must provide that your circumstances be reviewed by the Personal Insolvency Practitioner at regular intervals (not more than 12 months) during the currency of the PIA; this review will involve the preparation of a new Prescribed Financial Statement that must be sent to all the creditors.
- It must make provision for the Personal Insolvency Practitioner’s costs
Ongoing pension income receivable by you or an entitlement to a pension lump sum or income in accordance with the tax code will be treated as an asset or, as applicable, income for the purposes of a PIA. The terms of the PIA may provide for payment of some or all of that pension/lump sum or income to creditors during the PIA period.
Your pension fund will be excluded from any PIA if it is a relevant pension arrangement for the purposes of the Act. Approved Retirement Funds (ARFs) do not fall into this category and may be included in a PIA. There will be an onus on you to be transparent in relation to all historical pension contributions and the PIP will review these.
If a creditor or your PIP considers that you have made excessive pension contributions in the 3 years before applying for a PIA, an application can be made to the court to recover these contributions for distribution to your creditors.
While the PIA is in effect, you may not get credit for any amount over €650 without informing the lender that you have a PIA. You may not sell or deal in property above a certain value, except in accordance with the terms of the PIA. However, no such restriction is placed on your spouse or civil partner.
The PIA process
You must make your proposal for a PIA through a Personal Insolvency Practitioner (PIP). This is a professional who is authorised by the Insolvency Service of Ireland (ISI) and will act on your behalf throughout the Personal Insolvency Arrangement.
The ISI has developed standard protocols for use by PIPs when making straightforward proposals to creditors for a PIA or a Debt Settlement Arrangement.
You must disclose all details of your financial affairs to the PIP, who will then advise you whether or not you meet the conditions for a PIA, the consequences, any alternative options, and the fees that you may have to pay. You must act in good faith and co-operate fully with the process.
The PIP will help you complete a Prescribed Financial Statement as part of your application, giving full and honest information about your financial circumstances.
You must also make a declaration that you have been unable to agree an alternative repayment arrangement with your creditor(s) or that your creditor(s) have confirmed in writing that they are unwilling to enter into an alternative repayment arrangement in respect of your principal private residence. See ‘Mortgage arrears on your home’ above for specific rules about mortgage debt.
You will have to give your written consent to enable:
- The PIP to disclose your personal data to the ISI
- The ISI to process your application
- The ISI to make any necessary enquiries about you and
- The ISI to disclose your personal data to the creditors concerned, as required
In general, you must act in good faith and co-operate fully with the process.
In general, a fee of €500 was payable to the ISI for the issue of a protective certificate – described below. However, in the case of ‘interlocking’ PIAs, which is where two individuals have joint and independent debts on their own, only one fee had to be paid.
There is no set scale of fees for PIPs, but they are required to specify their charges and associated costs clearly before being appointed to act on your behalf.
The Personal Insolvency Practitioner sends your application to the ISI. The ISI checks that all the details are in order and, if so, issues a certificate to that effect and forwards all to the relevant court (the Circuit Court in cases up to €2.5 million and the High Court in larger cases). The court reviews the documentation and, if all is in order, issues a protective certificate. The ISI records the details of the protective certificate on its Register of Protective Certificates.
The PIP then notifies each of your creditors of the existence of the protective certificate and your intention to make a proposal for a PIA.
The protective certificate will give you 70 days during which your creditors may not:
- Start or continue legal proceedings in respect of the debt
- Take or continue any steps to enforce a judgment or contact you about the debt unless you agree to this
- Start or continue bankruptcy proceedings against you
The court may extend the period of the protective certificate by a further 40 days if it is satisfied that:
- You and the PIP have acted in good faith and with reasonable expedition, and
- It is likely that, if the extension is granted, a proposal for a PIA will be made that is likely to be accepted by the creditors and successfully completed by you
A creditor may apply to the court for an order directing that the protective certificate not apply to him or her. The court will grant this order only if satisfied that failing to give it would cause irreparable loss to the creditor that would not otherwise occur and that no other creditor to whom notice of the protective certificate has been given would be unfairly prejudiced.
Contacting your creditors
Once the protective certificate has been granted, your PIP must invite the relevant creditors to make proposals about the manner in which the debts might be dealt with as part of a PIA. The creditors must be given your Prescribed Financial Statement.
The PIA must provide for the way in which security held by your creditors is treated. Unless they agree otherwise, they may get the full value of their security or the full amount that you owe them if the security (such as a second property) is sold.
When formulating the proposal for a PIA, the PIP will ensure, as far as is reasonably practicable, that you are not required to sell or move out of your principal private residence (your home). If you wish to move out, or if the PIP believes that the running costs of staying in your home are disproportionately large, the PIA may provide for you to move out of it.
When you have consented to the proposal for a PIA that has been formulated by your PIP, the PIP must call a creditors’ meeting. If there is only one creditor, he or she may write to the PIP indicating agreement or rejection. The creditors vote on whether or not to accept the proposed arrangement. Each vote is proportional to the amount of debt owed to that creditor. Creditors representing 65% or more of the value of the total debt – both secured and unsecured – must vote in favour, for the arrangement to be accepted. In addition, over 50% of your secured creditors and 50% of unsecured creditors must vote in favour.
Under the original legislation, if the creditors reject the proposal, the protective certificate ceases to have effect and the PIA process comes to an end. However, the Personal Insolvency (Amendment) Act 2015 now provides for court review where a mortgage lender rejects the borrower’s personal insolvency proposal. Read more detail about this process in the ISI’s press release (pdf).
The new aid and advice scheme for people in serious mortgage arrears covers free legal representation for eligible borrowers in seeking such a court review.
If the proposal is accepted, the PIP must inform the Insolvency Service and tell creditors of their right to object to the relevant court - (the Circuit Court in cases up to €2.5 million and the High Court in larger cases). The Insolvency Service notifies the court. If there is any objection, the protective certificate remains in place until the matter is decided.
Objections by creditors
The grounds on which an objection to the coming into effect of the Personal Insolvency Arrangement may be made are limited and include the following:
- You arranged your affairs in the previous 2 years primarily with a view to becoming eligible for a Debt Settlement Arrangement or a Personal Insolvency Arrangement
- The procedural requirements were not followed
- A material inaccuracy or omission exists in your Prescribed Financial Statement that causes a material detriment to the creditor
- You did not meet the requirements when the arrangement was proposed
- The arrangement unfairly prejudices the interests of a creditor
- You have committed an offence under the Personal Insolvency legislation
- You have entered into a transaction at an undervalue or given a preference to a person in the previous three years that has materially contributed to your inability to pay your debts
Issue of a Personal Insolvency Arrangement
If there is no objection or an objection is not upheld, the court approves the Personal Insolvency Arrangement if satisfied that all the conditions have been met. The Insolvency Service records the PIA in its Register of Personal Insolvency Arrangements and it comes into effect.
Deferring Local Property Tax
Varying a Personal Insolvency Arrangement
Personal Insolvency Arrangements may be varied – the procedures are similar to those for setting up the arrangement.
A creditor or a PIP may apply to the court at any time during the Personal Insolvency Arrangement to have it ended. The grounds for such an application are limited and include the following:
- Your Prescribed Financial Statement has a material inaccuracy or omission that causes a material detriment to the creditor
- You did not meet the requirements when you started the process
- You did not comply with the terms of the Personal Insolvency Arrangement
- You have committed an offence under the personal insolvency legislation since the arrangement came into effect
- You are in arrears with your payments for a period of not less than 3 months
The full list of grounds is in Section 122 of the Personal Insolvency Act 2012.
If you are in arrears with your payments for more than 6 months, the PIA will be deemed to have failed. This will be recorded in the Register of Personal Insolvency Arrangements.
Ending of a Personal Insolvency Arrangement
If the arrangement ends other than by successful completion, you will become fully liable for all specified debts, inclusive of arrears, charges and interest that have accrued during the PIA period, less any payments made by you during that time, unless the terms of the PIA specify, or the court has ordered, otherwise.
If the arrangement is successfully completed, you are discharged from the unsecured debts covered by the arrangement. You will not be discharged from the secured debts, except where this was explicitly provided for in the PIA. The successful completion is recorded on the Register of Personal Insolvency Arrangements.
How to apply
Your application for a Personal Insolvency Arrangement must be made through a Personal Insolvency Practitioner (PIP). You can choose one from the Register of Personal Insolvency Practitioners that is published by the ISI.
Further information is available from the ISI’s helpline 0761 06 4200 (Monday to Friday, 9 am to 6 pm) and from its main website isi.gov.ie, as well as its website backontrack.ie for people who are struggling with debt.