Personal insolvency options
In the past, 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 were introduced under the Personal Insolvency Act 2012 for people who cannot afford to pay their personal and mortgage debts. The Insolvency Service of Ireland (ISI) administers these debt resolution processes. The ISI has a website backontrack.ie, aimed at people who are struggling with debt.
The rules on bankruptcy have also changed and the Official Assignee in Bankruptcy is now based within the ISI. Read more in our document on bankruptcy.
Measures to support people in mortgage arrears
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 personal insolvency proposal.
As part of Abhaile, the national Mortgage Arrears Resolution Service, an aid and advice scheme for people in serious mortgage arrears covers free legal representation for eligible borrowers in seeking such a court review.
Personal insolvency legislation
The Personal Insolvency Act 2012 became law in December 2012. The Act was amended by Part 7 of the Courts and Civil Law (Miscellaneous Provisions) Act 2013. A series of Statutory Instruments was made in order to bring the various sections into effect and implement the personal insolvency system. Further amendments were made by the Companies (Miscellaneous Provisions) Act 2013 and the Personal Insolvency (Amendment) Act 2015.
The Law Reform Commission has prepared a consolidation of the Personal Insolvency Act (pdf).
The Act introduced 3 new debt resolution mechanisms to help mortgage-holders and other people with unsustainable debt to reach agreements with their creditors. These 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 mechanisms introduced by the Personal Insolvency Act are:
- A Debt Relief Notice (DRN) to allow for the write-off of debt (generally unsecured and in some cases secured) up to a certain limit, subject to a 3-year supervision period. This upper limit was originally €20,000 but was increased to €35,000 with effect from 29 September 2015.
- A Debt Settlement Arrangement (DSA) for the agreed settlement of unsecured debt, with no limit involved, normally over 5 years
- A Personal Insolvency Arrangement (PIA) for the agreed settlement of secured debt up to €3 million (though this cap can be increased) and unsecured debt, with no limit involved, normally over 6 years
These mechanisms are described in more detail below.
The Act also introduced automatic discharge from bankruptcy, subject to certain conditions, after 3 years as opposed to 12 years previously. This period was later reduced to 1 year.
Mechanisms introduced by the Personal Insolvency Act
Each of these 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 3 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 3 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 3 mechanisms, your name and details will be published on a register, which is accessible to the public on the ISI website. The success or failure of the process will also be recorded.
EU Insolvency Regulation
Regulation (EU) No.663/2014 (pdf) updated the Annexes to the Regulation on Insolvency Proceedings (EC) No 1346/2000 (pdf), which aims to simplify formalities governing the reciprocal recognition and enforcement of judgments in cross-border insolvency matters.
The updated Insolvency Regulation designates the DRN, DSA and PIA as insolvency proceedings that can benefit from cross-border recognition. This means that a debtor availing of a DRN, DSA or 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 Insolvency Regulation.
Debt Relief Notice
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 €35,000 (formerly €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.
Debt Settlement Arrangement
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.
Personal Insolvency Arrangement
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:
- You must apply through a Personal Insolvency Practitioner (PIP) – see How to apply below
- You must be able to make some repayments to your creditors in return for a discount of your debts
- It is a voluntary arrangement and must get the support of creditors – both secured and unsecured – representing at least 65% of your total debt
In addition, over 50% of your secured creditors and 50% of unsecured creditors must vote in favour.
However, the Personal Insolvency (Amendment) Act 2015 now provides for court review where a mortgage lender rejects the borrower’s personal insolvency proposal. As part of Abhaile, an aid and advice scheme for people in serious mortgage arrears allows for free legal representation for eligible borrowers in seeking such a review.
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.
Summary of mechanisms
|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 €35,000 (formerly €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 from 3 December 2013||Unsecured and secured||Over €20,000||3 years||High Court (voluntary declaration or else creditors can petition)|
|Bankruptcy from 29 January 2016||Unsecured and secured||Over €20,000||1 year||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).
Insolvency Service of Ireland
The Insolvency Service of Ireland (ISI) is responsible for all matters concerning personal insolvency. Its role includes:
- Certifying applications for Debt Relief Notices
- Certifying applications for Debt Settlement Arrangement and Personal Insolvency Arrangements
- Developing guidelines for insolvency procedures
- Maintaining registers
- Authorising Approved Intermediaries (AIs)
- Authorising and regulating Personal Insolvency Practitioners (PIPs)
- Monitoring the operation of the arrangements
The Office of the Official Assignee in Bankruptcy is based in the ISI. This office administers the estate of a bankrupt person after the High Court has made a Bankruptcy Order.
How to apply
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. All Money Advice and Budgeting Services (MABS) companies are authorised as Approved Intermediaries and AIs are available in most MABS locations across the State. The MABS Helpline provides an initial checking service to check if you satisfy the eligibility criteria for a DRN.
Before contacting the MABS Helpline for this eligibility check, you will need to assemble all the relevant information about your debts, assets, income and circumstances. The MABS Helpline is at 0761 07 2000, Monday to Friday from 9 am to 8 pm.
Read more on mabs.ie.
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 (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.
The following table lists some of the key actions under the arrangements introduced by the Personal Insolvency Act and which body or individual is responsible for each:
|Who performs the action for each procedure?|
|Prepare application/proposal with debtor||Approved Intermediary (AI)||Personal Insolvency Practitioner (PIP)||Personal Insolvency Practitioner (PIP)|
|Verify application||Insolvency Service of Ireland (ISI)||ISI||ISI|
|Register protective certificate after Court approval||n/a||ISI||ISI|
|Issue DRN||Specialist judges of the Circuit Court||n/a||n/a|
|Review DSA/PIA proposal and approve or reject: if total liabilities are not over €2,500,000||n/a||Specialist judges of the Circuit Court||Specialist judges of the Circuit Court|
|Review DSA/PIA proposal and approve or reject: if total liabilities are over €2,500,000||n/a||High Court||High Court|
|Administer terms of DRN/DSA/PIA when in effect||ISI||Personal Insolvency Practitioner (PIP)||Personal Insolvency Practitioner (PIP)|
|Monitor operation of DRN/DSA/PIA||ISI||Personal Insolvency Practitioner (PIP)||Personal Insolvency Practitioner (PIP)|