Category Archives: Debt Relief

Examples of Debt Write Off in Ireland

The Insolvency Service of Ireland has released some useful real life examples of debt write off  – and the figures might surprise some people.
Debt Settlement Arrangement
One example was of a a female aged 37, married, employed on a part
time basis, with one child in preschool and
another in primary school .
In this case she  had debts of  €31,534 (unsecured bank loans and credit card debts) . She had assets of  a car worth €500 and €348 cash in the bank . Her monthly net income was €1209 and her “reasonable living expenses” came to  €1980 when rent costs were included.  This meant her income was €771 a month below her assessed needs.  (before any debt repayments)
In cases of debts over €30k  – the applicant would typically be just considered for bankruptcy. However she was able to get a lump sum of €9,500 from a relative to make available to her creditors
and to cover her PIP’s fee.   This payment was split between the creditors and  77% of the debtor’s debt was written off. (€24000).

Insolvency Application Fees Suspended until 2016

. In order to remove any perceived barrier to seeking help, the Insolvency Service of Ireland (ISI) SI has suspended all application fees for debt solutions until the end of 2015. Previously, these fees were €100 for a DRN, €250 for a DSA and €500 for a PIA.

“Application fees were raised by some people as a potential barrier,” said Lorcan O’Connor, “so we have removed them. We have tried to remove as many obstacles as we possibly can. While the majority of Personal Insolvency Practitioners (PIPs) charge a consultation fee, in almost all cases this is in the region of €100-€300 and some may not charge an initial fee at all. When a PIP takes on your case, you get protection from your creditors, you may have more to spend at the end of each week on food and day-to-day expenses, and you will be on a path to a fresh start.”

 

The ISI’s information campaign, ‘Back on Track’, will feature a new user-friendly website www.backontrack.ie, with videos and personal stories from people who have gone through the insolvency process successfully. Print and radio ads will run in regional and national media, starting this week. Guides to the three debt solutions have been revised and simplified, and the ISI will host a series of townhall meetings with community leaders in seventeen venues around the country.

Get Your Debts Written Off in Ireland

It will soon be possible , under new Personal Insolvency Legislation , to get certain debts of up to €20,000 completely written off in Ireland. From September – people can apply for a Debt Relief Notice  (DRN) and be debt free after 3 years.

Who is Eligible?

Debt Amounts – only debts of less than €20,000 can be covered by a Debt Relief Notice (DRN). If you have bigger debts you need to look into a Debt Settlement Arrangement.

Types of Debts – Debts that can be written off under a DRN  include ; Credit Card Debts, Store Card Debt,  Overdrafts ,  Personal Loans , Credit Union Loans , Utility bills . (All unsecured) .Mortgage debts and other secured debts  are not covered by DRNs

The following type of  Debts can be included in a DRN but only if the creditor agrees:  Taxes, duties, levies  payable to the State ;  Local government charges/rates/household charges  ;  Amounts due to the HSE under the Nursing Home Support Scheme ; Service charges to owner’s management companies  ; Social Welfare Overpayments

Note – Applicants  must not have incurred 25% or more of these debts during the past 6 months

Assets: You are not eligible for a DRN  if you own assets (including property) valued at more than  €400. So homeowners are not eligible for this type of debt relief.

But – these  assets  are not counted :
1 item of jewellery worth  €750 or less
1  motor vehicle worth  €2000 or less
Reasonably necessary household furniture/tools worth less than €6,000

Income Levels– Your monthly Disposable Income needs to be below specified guidelines  – which depend on the size of your household. Disposable Income is defined as Gross Income less :-
Income tax,
Social insurance contributions (PRSI/USC) ,
Reasonable Rent Payments ,
Payments of debts that are excluded from the DRN.

These are some examples of the maximum Income levels for different households that would allow them to be eligible  for a DRN: (This is after payment of Rent)

Single Adult  €1089
Single Parent  + 1 Primary school Aged Child  €1461
Single Parent  + 1 Infant + 1 Preschool Child  €1694
Couple + 1 Primary School aged child €1727
Couple + Primary Child + Secondary Child  €2236
Couple +  2 Secondary School Children  €2439
Couple + 3 Secondary School Children €2949

These amounts are calculated from the ISI reasonable living expenses guidelines for households with a car ( plus the €60 DRN “allowance”) Note : We have included Child Benefit as income because we haven’t reduced the reasonable living expenses to take account of Child Benefit

SO – using an example listed above
A couple with 2 secondary school children who are renting a house for €800 a month would be eligible for a DRN if their net income was less than €2439 + €800  = €3239 a month.
Take out the €260 child benefit – leaving €2979  a  month.
A take home pay of €2979 a month equates to roughly €43000 annual  gross income for a single earner couple.

If this couple have debts of under €20000 they could get  them all written off  in 3 years. (As long as their assets are no more than  €400 plus 1 item of jewellery worth  €750 or less plus 1  motor vehicle worth  €2000 or less , plus household furniture/tools worth less than €6,000)

If someone on a DRN has an increase in  monthly net income of €400 or more; or they  receive a gift or sum of money of €500 or more –  they have to give  50% to the ISI for the benefit of their creditors.

Once a Debt Relief Notuce is issued it lasts for 3 years – none  of the creditors listed in the DRN can  can pursue you for the debts you owe them that are specified in the DRN. At the end of the 3 year period, all debts listed in the DRN will be written off in full.

Debt Write Off and Tax Issues

Revenue have responded to reports that mortgage debt write off may be subject to taxation . (Their reply means in most cases it won’t be taxed )

Section 5 of the Capital Acquisitions Tax Consolidation Act 2003 provides that a person is deemed to take a gift where, under or in consequence of any disposition, that person becomes beneficially entitled in possession, otherwise than on a death, to any benefit otherwise than for full consideration in money or money’s worth paid by such person.

By virtue of the definition of “disposition” in section 2 (1) CATCA 2003 the release, forfeiture, surrender or abandonment of any debt or benefit, or the failure to exercise a right may be subject to CAT in certain situations.

The Revenue ststement concludes :

Where for bona fide commercial reasons, a financial institution enters into a debt restructuring, forgiveness or write-off arrangement with a customer, Revenue’s approach, subject to being satisfied as to the bona fides of the arrangement (which may be subject to Revenue audit or enquiry) is that the financial institution is not intent on making a gift of any sort to the mortgagor/debtor – and accordingly the mortgagor/debtor would not be subject to a CAT charge in respect of any such debt restructuring, forgiveness or write-off arrangement.

This approach will only apply in the above-mentioned circumstances. In particular, should any debt restructuring, forgiveness or write-off arrangement be undertaken for the purposes of the avoidance of tax, the treatment outlined above would not apply.

Debt Relief Notices – More Details

Debt Relief Notices  – The Details

The new Irish Personal Insolvency Laws have introduced something called a Debt Relief Notice. The Debt Relief Notice process is like a simplified bankruptcy. It allows for the write off of up to €20,000 of debt  after 3 years .

Debt Relief Notices  are only for debts of  €20,000 or less and only for  people who  have no income and no assets, are insolvent and have no realistic prospect of paying their debts within the following five years. In particular, this will be of relevance to those who do not own their home.

Who qualifies for a Debt Relief Notice

You may be eligible for a Debt Relief Notice if ..

a) your  net monthly disposable income is €60 or less. (Your disposable income is your income after deductions for reasonable living expenses and payments to cover debts that are excluded from this process) . All income, with the exception of Child Benefit, is taken into account.

AND

b) The total value of your assets is €400 or less. Assets  include savings, shares and property.
Assets do not include:

· Essential household equipment and appliances

· Books, tools or equipment needed for employment or business

· One motor vehicle up to a value of €1,200 or a vehicle that is specially adapted for you as a person with a disability

The Debt Relief Notice  covers most types of debt, for example, debts arising from credit cards, overdrafts, personal loans and utility bills. If you owe money because of a hire purchase agreement, you must give up possession of the relevant goods. The outstanding amount can then be treated as a qualifying debt for the purposes of a Debt Relief Notice.

 

The following debts are excluded from the process:

· Debts under family law orders – for example, maintenance orders for spouses and children

· Taxes, duties or levies owed to the State including  the Household Charge and rates

· Money owed to the Health Service Executive (HSE) under the Nursing Homes Support Scheme

· Debts due to owners’ management companies in respect of annual service charges for multi-unit developments

· Debts due under court awards for personal injuries or death

· Debts arising from a loan (or forbearance of a loan – an arrangement to postpone or otherwise rearrange payments) obtained through fraud or similar wrongdoing

Who is not eligible

You will not be able to get a Debt Relief Notice if:

· You have already had one

· You have applied for a protective certificate  in the previous 12 months

· You are currently a party to a Debt Settlement Arrangement or a Personal Insolvency Arrangement or you have successfully completed such an arrangement within the previous five years

· You are involved in bankruptcy proceedings, you are an undischarged bankrupt or you have been discharged from bankruptcy in the previous five years

· You incurred 25% or more of the debts in the six months before you applied

· In the previous two years, you have entered into any transaction at an undervalue or given a preference to any person (where you have intentionally done something to put one creditor in a better position than others)

Approved intermediaries

You may apply for a Debt Relief Notice only through an approved intermediary (the Insolvency Service are going to decide who will be approved intermediaries.) The Money Advice and Budgeting Service (MABS) will be an approved intermediary .

Approved intermediaries may not charge you any fees for their services but the Insolvency Service may give them a grant out of the fees that it collects for its services.

Approved intermediaries will not be liable for damages resulting from their actions unless there is bad faith involved – in effect, the usual rules about professional negligence will not apply to them.

You must disclose all details of your financial affairs to the approved intermediary. The intermediary will then advise you whether or not you meet the conditions for a Debt Relief Notice, the consequences of getting such a notice, the alternative options that may be available to you, and the fees (if any) that you may incur in the process. If you decide to proceed, you must confirm this intention in writing.

The intermediary will help you to complete a Prescribed Financial Statement and will process the application if they consider that:

· The information in your statement is complete and accurate

· You meet the conditions for eligibility

· It is appropriate for you to apply for a Debt Relief Notice (note that appropriate means that there is a reasonable prospect that getting such a notice would facilitate you becoming solvent within five years)

If the intermediary is satisfied about all of this, they will issue a statement to that effect.

The application is then made to the Insolvency Service. The application must include all the details of your financial affairs and your debts. If the Insolvency Service considers that the application is in order, it will issue a certificate to that effect and notify the Circuit Court. The Circuit Court will then review the application and documentation and, if satisfied that the conditions are met, will issue a Debt Relief Notice.

The Court will notify the Insolvency Service, the approved intermediary, you and the relevant creditor(s) of the notice. The notice will relate to specific debts and specific creditors; you may well have other debts that are not covered by it and those creditors are not affected by it. The Insolvency Service will put details of the notice on its Register of Debt Relief Notices.

Supervision period

If you get a Debt Relief Notice, you will be subject to supervision for three years. This period may be extended by the court in certain circumstances.

During the supervision period, the creditor(s) will not be allowed to pursue any action against you for the recovery of the debt. If the debt was guaranteed by another person, the creditor may take action against that person.

During the supervision period, you will be obliged to tell the Insolvency Service of any change in your circumstances, for example, any increases in income, assets or liabilities. If you receive a gift worth €500 or more, you must surrender half of it to the Insolvency Service. If your net income (after tax, PRSI and Universal Social Charge) increases by more than €250 a month, you must surrender half of that increase as well. If you manage to surrender half of the total debts covered by the Debt Relief Notice, then you no longer have to surrender any further money. You may not get credit of €650 or more from any source without informing that source that you have a Debt Relief Notice.

 

At the end of the 3 year supervision period – the Debt Relief Notice ends and you are  discharged from the debts and any interest or penalties on those debts. Your name is then removed from the register and you are given a Debt Relief Certificate

Debt Write Offs Possible in Spring

The new  Insolvency Service of Ireland should be up and running and  accepting  debt relief applications in the second quarter of 2013 .
Any applications will be  published on a  public register

But the Department of the Taoiseach has said that its IT systems to deal with the applications may not be up and running until the second half of 2013.

Earlier this year the EU Commission warned that new personal insolvency laws could see the focus placed on larger  mortgage cases at the expense of smaller, hard-pressed homeowners in greater distress.

The maximum level of  debt write off under the insolvency legislation is €3m  – but the  EU commission have previously expressed concern that this might be “unduly high”.

The Government has approved an initial staff of 80 for the Insolvency Service, and eight Circuit Court judges will be allocated to deal with the cases.

New Insolvency Rules could make things Worse in Ireland

Citibank have produced a report  titled ‘Ireland: Tough times ahead’ – and in it  they say that Personal insolvency rates could rise  when the Insolvency Bill is passed and Ireland could  slip back into recession.

Citibank say —  “In our view, it is likely that personal insolvencies in Ireland will soar in the next year or two, with more use of default as a means of deleveraging, especially since long- term unemployment continues to rise in Ireland.”

Citibank based their assessment on what happened in the UK  when similar changes to insolvencies were introduced about 10 years ago. Despite strong economic growth, the number of insolvencies in the UK doubled between 2001 and 2006.

A knock-on effect of an increase in insolvencies would be a further tightening of lending by banks.

Rising insolvencies are likely to cause additional losses — perhaps substantial — for Ireland’s banks on consumer credit and mortgage loans, and also may feed back to rising interest rates and tighter lending standards as banks seek to protect themselves against rising credit risk.”

 

 

 

 

MABS could run the Insolvency Service

Money Advice and Budgeting Service (MABS)  could end up running the new State-run insolvency service .

The insolvency service is to be set up under the Personal Insolvency Bill.
It will be responsible for  helping people to manage personal debt through budgeting advice and new arrangements with lenders.

Labour TD Anne Ferris said she would seek her  support for the nomination of Mabs, when insolvency practitioners address the committee next week.

Among the groups invited to address the committee next week are Mabs, Free Legal Advice Centres (Flac) and advocacy group New Beginning.

MABS has over 60 offices across the State and Ms Ferris said they seemed the “obvious choice to be the designated intermediary under the insolvency Bill”.

The Citizens Information Board currently has statutory responsibility for Mabs but Ms Ferris’s proposal would see the agency attain statutory responsibility in its own right.