Debt Settlement Arrangements
A Debt Settlement Arrangement (DSA) 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 Debt Settlement Arrangement applies to the agreed settlement of unsecured debts, usually over a period of 5 years. The limit of 5 years can increase to 6 years in some situations. When the DSA concludes successfully, the debts that it covers will be fully discharged and the debtor will be solvent again.
This document describes how to qualify for a DSA and how the DSA process works.
The Insolvency Service of Ireland (ISI) has published detailed information about DSAs, including possible scenarios, FAQs and a booklet. It also provides extra information on DSAs, 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.
Am I eligible?
Debt Settlement Arrangements provide for the agreed settlement of debts in the case of people who have unsecured debts and have no prospect of being able to pay off their debts in the next 5 years. You may opt for a DSA if you have secured debts as well, but your secured debts will not be covered by the DSA. See ‘Secured and unsecured debts’ below for an explanation of these terms.
You can only avail of a DSA once in your lifetime. You cannot get a DSA if you are involved in one of the other debt resolution processes introduced by the Act, or in the bankruptcy process. Nor can you get a DSA if you have completed a Personal Insolvency Arrangement or a bankruptcy within the last 5 years, or a Debt Relief Notice within the last 3 years.
You can only get a DSA by agreement of a specified majority of your unsecured creditors – see Main elements of a DSA below.
Before you make your application, you must either be domiciled in the State or, within the year, have been living in the State or had a place of business in the State.
As mentioned above, the only debts that a DSA can cover are unsecured debts. There is no limit on the total amount of debt that can be covered. However, if your total debt is unsecured and is €35,000 or less (formerly €20,000) you can opt for a Debt Relief Notice instead of a DSA.
If you have some secured debts, you can apply for a Personal Insolvency Arrangement, which can cover both secured and unsecured debts. However, if you can manage to cover your secured debts, whether by making full repayments or by agreeing an arrangement with your secured creditors (such as interest-only repayments on your mortgage) you can apply for a Debt Settlement Arrangement to cover your unsecured debts separately.
At least three-quarters (75%) of your unsecured debts must have built up at least 6 months before you apply for a DSA – in other words, you can’t apply for a DSA if any more than 25% of your unsecured debts were incurred in the last 6 months.
Secured and unsecured debts
A Debt Settlement Arrangement only covers unsecured debts 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.
The Personal Insolvency Act 2012 specifies certain types of debt that cannot be written off by the new debt settlement procedures, which include the Debt Settlement Arrangement. These are called excluded debts.
The types of debt that are excluded and cannot be covered by a DSA are:
- Debts under family law orders, such as maintenance orders for spouses and children
- Debts due under court awards for personal injury or wrongful death
- Debts arising from a loan (or forbearance of a loan) obtained through fraud or similar wrongdoing
- Debts arising under fines imposed by the courts for criminal offences or court orders made under the Proceeds of Crime Acts
The Act specifies certain other types of debt to be excludable from a DSA. This means that they can be covered by the DSA 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 will also have been 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 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)
Main elements of a DSA
You must make your proposal for a Debt Settlement Arrangement through a Personal Insolvency Practitioner (PIP) – see The DSA process below.
The DSA proposal must be agreed by you and then approved at a creditors’ meeting. The proposed DSA will have to get the support of creditors representing at least 65% of the total debt that it covers.
A DSA may involve you making regular payments of agreed amounts to your Personal Insolvency Practitioner, who will distribute them to your creditors according to the terms of the DSA.
Your creditors may not take any action against you to enforce the debt during the lifetime of the DSA. If you keep to the terms of the DSA, the rest of your debt to the creditors that it covered will be discharged and you will be solvent again.
The DSA has been designated as an insolvency proceeding which can benefit from cross-border recognition. This means that a debtor availing of a DSA 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).
Mandatory terms of a DSA
There are certain elements that the DSA must contain:
- The maximum duration of the agreement must be 5 years but this may be extended by up to one year in circumstances as specified in the terms of the arrangement
- If you keep to the terms of the agreement your remaining debts to the creditors covered by the DSA 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 debts’ and ‘Excludable debts’ above
- The DSA 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
- 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 DSA; 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
If you are entitled to receive pension income or a pension lump sum, it will be treated as an income/asset for the purposes of a Debt Settlement Arrangement. The terms of the DSA may provide for some or all of that pension lump sum or income to be paid to your creditors while the DSA is in effect.
Your pension fund itself will be excluded from any DSA arrangement if it is a relevant pension arrangement for the purposes of the Act. Approved Retirement Funds (ARFs) are not relevant pension arrangements and may be included in a DSA.
You must be transparent in relation to all pension contributions that you have made in the past. The PIP will review these and where the PIP or a creditor considers that you have made excessive pension contributions within 3 years prior to application for a protective certificate, either of them can apply to the court to recover these contributions for distribution to creditors.
While the DSA is in effect, you may not get credit for any amount over €650 without informing the lender that you have a DSA. You may not sell or deal in property above a certain value, except in accordance with the terms of the DSA. However, no such restriction is placed on your spouse or civil partner.
The DSA process
You must make your proposal for a DSA 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 Debt Settlement Arrangement.
The ISI has developed a standard protocol for use by PIPs when making straightforward proposals to creditors for a DSA.
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 DSA, what the consequences will be and what fees you may have to pay. The PIP will also advise you of any other options that are available.
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).
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.
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 Insolvency Service. The ISI checks that all the details are in order and, if so, issues a certificate to that effect and forwards all the documentation 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 Insolvency Service records the details of the protective certificate on its Register of Protective Certificates.
The Personal Insolvency Practitioner then notifies each of your creditors of the existence of the protective certificate and your intention to make a proposal for a DSA.
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 Personal Insolvency Practitioner have acted in good faith and with reasonable expedition, and
- It is likely that, if the extension is granted, a proposal for a DSA 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.
Formulating a DSA proposal
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 DSA. The creditors must be given your Prescribed Financial Statement.
In order to help the PIP to formulate the proposal, you will be required to provide an honest and accurate account of your living expenses, your life plans and any circumstances that may be relevant to how much of your debts you can pay, now and in the future.
When formulating the proposal for a DSA, 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 DSA may provide for you to move out of it.
When you have consented to the proposal for a DSA 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. In order for the arrangement to be accepted, creditors representing 65% or more of the value of your total unsecured debt must vote in favour of the proposal.
If the creditors reject the proposal, the protective certificate ceases to have effect and the DSA process will have come to an end.
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 Debt Settlement 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
Issuing a Debt Settlement Arrangement
If there is no objection or an objection is not upheld, the court approves the Debt Settlement Arrangement if satisfied that all the conditions have been met. The Insolvency Service records the DSA in its Register of Debt Settlement Arrangements and it comes into effect.
Deferring Local Property Tax
Varying or ending a Debt Settlement Arrangement
Debt Settlement Arrangements may be varied if there is a material change in a debtor’s circumstances that would affect his/her ability to make repayments under the DSA – 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 Debt Settlement Arrangement to have it ended. The grounds for such an application will be 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 eligibility criteria when you started the process
- You did not comply with the terms of the Debt Settlement 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 83 of the Personal Insolvency Act 2012.
If you are in arrears with your payments for more than 6 months, the DSA will be deemed to have failed. This will be recorded in the Register of Debt Settlement Arrangements.
When a Debt Settlement Arrangement ends
If the arrangement ends other than by successful completion, you become fully liable for all specified debts, including arrears, charges and interest that have accrued during the DSA period, less any payments made by you during that time, unless the terms of the DSA specify, or the court has ordered, otherwise.
If the arrangement is successfully completed, you are discharged from the debts covered by the DSA. The successful completion is recorded on the Register of Debt Settlement Arrangements. You are now solvent.
How to apply
Your application for a Debt Settlement Arrangement must be made through a 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.