Previously, if you were insolvent – that is, you were unable to pay your debts or meet your liabilities – bankruptcy was the only formal mechanism available for you to settle your debts and get protection from your creditors.
Three new debt resolution mechanisms have been developed for people who cannot afford to pay their personal and mortgage debts. The Insolvency Service of Ireland administers these debt resolution processes. The new system has been introduced under the Personal Insolvency Act 2012.
Other recent developments include the Central Bank's pilot framework for restructuring of distressed consumer debt across multiple lenders.
The Personal Insolvency Act 2012 was signed into law in December 2012. The Act was amended by Part 7 of the Courts and Civil Law (Miscellaneous Provisions) Act 2013 and a series of Statutory Instruments has been made in order to bring the various sections into effect and implement the new personal insolvency system. Further amendments are proposed in the Companies (Miscellaneous Provisions) Bill 2013.
The Act has introduced 3 new debt resolution mechanisms to help mortgage-holders and other people with unsustainable debt to reach agreements with their creditors. The new mechanisms offer different solutions to people in different situations.
One important issue is 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 are the most common secured loans. In general, debts such as bank loans and credit card debt are unsecured, but if they are rolled up into your mortgage, they become secured loans.
The new mechanisms are:
These mechanisms are described in more detail below.
The Act has also introduced automatic discharge from bankruptcy, subject to certain conditions, after 3 years as opposed to 12 years previously. The relevant sections of the Act came into effect on 3 December 2013.
Each of the new debt resolution mechanisms has its own rules and procedures but the following main rules apply to all of them:
Limits on usage
You can be involved in only one of the new mechanisms (DRN, DSA or PIA) or in the bankruptcy process at any one time. If you use one of these 4 processes, you will generally have to wait some years before applying to use another.
You may use each of the new mechanisms only once in your lifetime. (There is no such limit on bankruptcy but it would be rare for anyone to go bankrupt twice.)
Running up debts
You must not deliberately stop paying (or underpay) your creditors while these procedures are being set up as this may cause your application to be ineligible.
Provision of information
You will have to complete a Prescribed Financial Statement, giving full and honest information about your financial circumstances. The required information is specified in these Regulations (pdf). You will have to sign a Statutory Declaration to this effect. You must act in good faith and co-operate fully with the process.
You will have to give your written consent to the accessing of certain personal data held by banks and other financial institutions so that your financial situation can be verified. Government Departments and agencies will have the power to release certain information about you.
If you use any of these new mechanisms, your name and details will be published on a register that will be accessible to the public. The success or failure of the process will also be recorded.
The Debt Relief Notice (DRN) process provides debt relief for people who have virtually no disposable income or assets and no prospect of being able to pay off the debt in the next 3 years. If a DRN is issued for you, it will allow for the write-off of your qualifying debt up to €20,000, subject to a 3-year supervision period.
During this period your creditors will not be able to pursue you for payment, but if your circumstances improve during the 3 years, you may have to pay part of your debts accordingly. At the end of the 3 years, all of the debts covered by the DRN will be written off, even if you have not managed to pay anything off them.
How do you get a DRN?
Your application must be made through an Approved Intermediary (AI) – see How to apply below. This is a person or class of persons authorised by the ISI to support a debtor to make an application for a Debt Relief Notice.
A Debt Settlement Arrangement (DSA) provides for the agreed settlement of unsecured debt with one or more creditors over a period of 5 years, with a possible agreed extension to 6 years. You may apply for a DSA if the level of your income, assets and debts would make you ineligible for a Debt Relief Notice. You must be able to make some repayments to your creditors in return for a discount of your debts. The DSA is a voluntary arrangement and it will have to get the support of creditors representing at least 65% of your total debt.
You must process your application through a Personal Insolvency Practitioner (PIP). This is a professional who is approved and registered by the Insolvency Service of Ireland to operate DSAs and Personal Insolvency Arrangements – see How to apply below.
When the agreed period ends, and if your DSA has operated successfully, you will be discharged from the debts that it covered.
A Personal Insolvency Arrangement (PIA) provides for the agreed settlement of secured debt up to a limit of €3 million (although this cap may be increased with the consent of all secured creditors) and an unlimited amount of unsecured debt. A PIA will run over a period of 6 years, with a possible agreed extension to 7 years.
The PIA works like a Debt Settlement Arrangement in the following ways:
In addition, over 50% of your secured creditors and 50% of unsecured creditors must vote in favour.
When the agreed period ends, and if your PIA has operated successfully, you will be discharged from the unsecured debts that it covered but the secured debt will only be discharged to the extent specified in the PIA.
|Arrangement||Type of debt covered||Value||Duration||Apply through|
|Bankruptcy previously||Unsecured and secured||At least €1,900 (1 creditor) or €1,300 (combined creditors)||12 years||High Court (voluntary declaration or else creditors could petition)|
|Debt Relief Notice (DRN)||Unsecured (and secured in certain cases)||Up to €20,000||3 years||Approved Intermediary (AI)|
|Debt Settlement Arrangement (DSA)||Unsecured||No limit||5 years (+1)||Personal Insolvency Practitioner (PIP)|
|Personal Insolvency Arrangement (PIA)||Unsecured and secured||No limit on unsecured
Up to €3m secured (though cap can increase if agreed)
|6 years (+1)||Personal Insolvency Practitioner (PIP)|
|Bankruptcy since 3 December 2013||Unsecured and secured||Over €20,000||3 years||High Court (voluntary declaration or else creditors can petition)|
Note: You cannot apply on your own for a DRN, DSA or PIA. You must apply through an Approved Intermediary (for a DRN) or a Personal Insolvency Practitioner (for a DSA or PIA).
The Insolvency Service of Ireland (ISI) is responsible for all matters concerning personal insolvency. Its role includes:
The Office of the Official Assignee in Bankruptcy has been transferred to the ISI. This office administers the estate of a bankrupt person after the High Court has made a Bankruptcy Order.
For a Debt Relief Notice, your application must be made through an Approved Intermediary (AI). You can choose an AI from the Register of Approved Intermediaries that is published by the ISI. Several Money Advice and Budgeting Services (MABS) have been authorised as AIs to date. MABS operates a screening process to check if you satisfy the eligibility criteria for a DRN.
Before contacting MABS to be screened, you will need to assemble all the relevant information about your debts, assets, income and circumstances – use the MABS pre-screening guide to help with this.
For a Debt Settlement Arrangement or a Personal Insolvency Arrangement, you must apply through a Personal Insolvency Practitioner (PIP). You can choose a PIP from the Register that is published by the ISI.
Further information is available from the ISI’s helpline 0761 06 4200 and from its website isi.gov.ie.
If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000 (Monday to Friday, 9am to 8pm) or you can visit your local Citizens Information Centre.