Category Archives: Write Off

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).

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 Settlement Arrangements

Debt Settlement Arrangement (DSA)  is something we might  be hearing a lot more about in Ireland soon.  New Irish  Insolvency laws are being introduced in 2013 to try and  help people sort out debt problems without resorting to legal action.
Debt Settlement Arrangements will allow  an agreement between you and your creditors (people you owe money to) to pay all or part of your debts off over a set period.

A DSA only applies to unsecured debts such as credit card, personal loans, overdrafts, retail, store catalogues, etc which amount to more than €20,000.
For debts below €20000 you need to look into a Debt Relief Notice .

The first stage is to find  a personal insolvency practitioner  (PIP) , who will examine your ircumstances, complete a financial statement of affairs and apply to the Insolvency Service for a Protective Certificate in respect of preparation of a DSA.
If granted –  the Protective Certificate would allow you a 30 days during which creditors may not take action against you.

The next step is for the personal insolvency practitioner to forward a DSA to your creditors for their agreement. The proposal would set out the amounts to be repaid by you  over a five year period and any special conditions.

If the repayment proposal is accepted by your creditors (by a vote of 65% in value of qualifying creditors), the Insolvency Service would provide formal registration of the Debt Settlement Arrangement

At the satisfactory conclusion of the DSA after 5 years, all of your  debts covered by it would be discharged in full.  You will not be able to apply for another DSA within a ten-year period.

A DSA will likely be subject to annual review by the PIP to reflect any changes in your fiinancial circumstances. It may be varied or terminated and you  could still be subject to an application for adjudication in bankruptcy on the ending, termination or failure of the DSA.

There are grounds for challenge by creditors to a  DSA proposal and there is a role for the courts on application to have a DSA annulled.

 

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.