Personal Insolvency Bill to be enacted by the end of the year

The Insolvency Bill has finally passed all stages the Oireachtas and will be enacted before the end of the year.  It is due to come into force by the end of March next year.

The main purpose is to provide a mechanism is to deal with the resolution of loans in difficulty ranging from €20,000.00 up to €3,000,000.00. 

It is hoped that the Act will in the appropriate circumstances, bring about a level of debt write off.  The Act provides for the fall back situation that if agreement cannot be reached between the debtor and the financial institution concerned that bankruptcy may be an unavoidable consequence.  The bankruptcy period has been reduced from 12 years to a more manageable 3 year period although there are circumstances where this can be extended to 8 years if there has been evidence of non-disclosure on the part of the debtor. 

Much of the debate in relation to the legislation has centred around the veto which Banks will have on any debt forgiveness proposal.  However the reality is that the Banks will have to exercise a certain amount of commercial sense to any such proposals.  If it simply refuses to agree to reasonable proposals it is possible that debtors will opt for bankruptcy and the Banks will lose out significantly on the security of its assets.

There are three personal insolvency arrangements created by the Banks;

1. Debt Relief Notice which deals with debts of less than €20,000.00 where people have a very low disposable income and where they have no secured assets.  It is envisaged that such debt relief notices will be negotiated directly between the debtor and the Banks.
2. The second arrangement is a Debt Settlement Arrangement which deals with unsecured debt of greater than €20,000.00.
3. The third element which is likely to be the most used of the three options is the Personal Insolvency Arrangement (PIA) which is aimed at those with secured assets including mortgage debt in excess of €20,000.00 but no greater than €3,000,000.00.  This will only apply where there is no possibility of full repayment. 

This will involve negotiations with a Personal Insolvency Practitioner who will try to negotiate an agreement between the debtor and the institution.  Any such arrangements must be approved by the Circuit Court.  The Minister has indicated that eight specialist Judges will be assigned to the applications.

In order for such a proposal to be approved no less than 65% of the secured lenders must agree to the PIA which will involve payments by the debtor for a period of six years.

Time will tell as to how successful this Act is going to be but it is likely to be of significant assistance to people with severe mortgage debt.  We at Dillons have been advising many clients on Personal Insolvency related issues for a number of years.

For further information on the provisions of the Act or how we can assist you please contact Brendan Dillon on 01-296 0666 or info@dillon.ie