Who Can become a Personal Insolvency Practitioner ?

With the new Irish Personal Insolvency regulations  – there will probably be plenty of people thinking of  making money out of sorting out other people’s debt problems.

Anyone who wants to apply for a Debt Settlement Arrangement or a Personal Insolvency Arrangement will have to apply through a PIP – Personal Insolvency Practitioner. These PIPS will be able to charge fees . The fees will be taken out of the payments made to creditors.

The Insolvency Service started  accepting applications to become a  PIP during June 2013. There will be an application fee of €1500 and a renewal fee of €1000 annually. You can make your  application  here

According to the Insolvency Service of Ireland – only the following types of people can make an application to carry on practice as a personal insolvency practitioner

A solicitor in respect of whom a practising certificate (within the meaning of the Solicitors Acts 1954 to 2011) is in force; or

A barrister at law called to the Bar of Ireland;

A qualified accountant and a member of a prescribed accountancy body (within the meaning of section 4 of the Companies (Auditing and Accounting) Act 2003; or

A qualified financial advisor who holds a current qualification from the Life Insurance Association of Ireland (LIA), the Insurance Institute or the Institute of Bankers School of Professional Finance; or

Anyone who holds a qualification in law, business, finance or other appropriate similar qualification to the satisfaction of the Insolvency Service recognised to at least level 7 of the National Qualifications Framework by Quality and Qualifications Ireland (or equivalent)

ALSO – the person must be able to  demonstrate to the satisfaction of the Insolvency Service that he or she has relevant knowledge and experience of and has completed a course of study and passed an examination on the law and practice generally as it applies in the State relating to the insolvency of individuals; and the Act

PLUS – Before someone  can become  a Personal Insolvency Practitioner, they must aslo satisfy the Insolvency Service that he or she:

a) has adequate organisational capability and resources to carry on the practise of a Personal Insolvency Practitioner

b) holds a policy of professional indemnity insurance.

c) is tax compliant.

 

Summary of New Insolvency System in Ireland

The Insolvency  Act will  introduce 3 new debt resolution mechanisms to help mortgage-holders and other people with unsustainable debt to reach agreements with their creditors. It will probably be July before anyone can apply for any of these.

The three proposed new mechanisms are summarised below :  Click on the links to find out more about each of them

 

A Debt Relief Notice (DRN) to allow for the write-off of debt (generally unsecured ) up to €20,000, subject to a 3-year supervision period

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

The Personal Insolvency Act will also introduce automatic discharge from bankruptcy, subject to certain conditions, after 3 years as opposed to 12 years at present.

Personal Insolvency Practitioner Fees

Some of the big financial companies will be trying to get some of the personal insolvency work in Ireland now that the new Personal Insolvency legislation is going to be implemented.

Anyone applying for the Debt Relief Notice (on debts under €20k)   will not pay any fees.
The more complex DSA and PIA will require the involvement of a Personal Insolvency Practitioner – and they can charge fees. It is the creditors who will pay the fees (the people or companies that are owed the money).
How much will the Fees be ?  In  in one of the examples on the Insolvency Service website – the PIP fees were estimated at €12000 over 5 years.  This was for a Personal Insolvency Arrangement for a couple. In the example the unsecured creditors were owed around €90000 – but at the end of 5 years they will only get just over €18000 back. The PIP gets two thirds of what the creditors get – and over €72000 is written off.

In another example of a PIA – the estimated PIP fees were €5100 over 5 years.
An example of a DSA involving  debts of €80000 –  the PIP fees were estimated at €4000 over 5 years.

MABS will be Approved Intermediary Service for Debt Relief Notices

Approved Intermediary Service is established in MABS to provide Debt Relief Notices under the Personal Insolvency Service

 

A Debt Relief Notice is  designed for people who have very low disposable income and little assets, and will allow for the write-off of qualifying debt up to €20,000, subject to a three-year supervision period.

To obtain a Debt Relief Notice, an application must be made through an Approved Intermediary. MABS will be providing an Approved Intermediary service to process applications for Debt Relief Notices

The Citizens Information Board together with MABS,  is working closely with the Insolvency Service to put the Approved Intermediary Service in place. Sixteen temporary money advice staff have been recruited to facilitate the rollout of the service within MABS.

A regionally based Approved Intermediary Service Transition Unit (AISTU) has been established and all Money Advice Co-Ordinators and one Money Advisor in each of the 51 local MABS companies around the country are being trained as Approved Intermediaries to ensure that the service will be available nationwide from the outset.

Insolvency Service Guidelines For Reasonable Living Expenses

When working out the monthly amount of debt repayments that someone can afford  – there will be  guidelines on how to calculate disposable income after housing costs and expenses needed to maintain a reasonable standard of living .

The Insolvency Service of Ireland say that having these guidelines will “help safeguard a minimum standard of living so as to protect debtors while facilitating creditors in recovering all, or at least a portion, of the debts due to them.”

The ISI guidelines for a single adult allow for a monthly expenditure of  €900.08 (where no car is needed ) Or  €1029.83  if they need a car (eg in rural areas)
This does not include housing costs (Rent or Mortgage) . There is also allowance in the guidelines for a debtor to specify other reasonable costs which arise as a consequence of ill-health or disability.

These guidelines are saying that after tax,prsi etc – this is the amount a person should be left with to live on. If they can’t make debt repayments from the remaining income – then they are insolvent.

These are the breakdowns of the guideline expenses€1029.83 for a single Adult  – Monthly

Food  € 247.04
Clothing  € 35.73
Personal Care  € 33.40
Health € 31.09
Household Goods € 31.47
Household Services € 28.61
Communications €43.45
Social Inclusion & Participation € 125.97
Education € 24.50
Transport (Private) € 240.13
Household Electricity € 48.87
Home Heating € 57.31
Personal Costs € 0.79
Home Insurance € 12.22
Car Insurance € 25.91
Savings & Contingencies € 43.33

The figure for a 2 adult household with no children  and needing a car – is  €1431.58 a month
So the guidelines only only allow an extra €401.75 a month for a couple compared to a single person .

There are additional expenditure amounts for children – they are different depending on the age of the child . The figures range from € 372.49 a month for an infant , € 163.67 a month for pre-school , € 294.71 for primary school age and €497.32 a month for a child of secondary school age .

These guidelines will be used when applying for a Debt Settlement Arrangement  or a Personal Insolvency Arrangement. The legislation states that   the DSA or PIA   “shall not contain any terms which would require the debtor to make payments of such an amount that the debtor would not have sufficient income to maintain a reasonable standard of living for himself or herself and his or her dependants. ”   .
The Personal Insolvency Bill also states that   ” in determining whether a debtor would have a sufficient income to maintain a reasonable standard of living for the debtor and his or her dependants, regard shall be had to these guidelines.”

For a Debt Relief Notice – to be eligible –  the debtor must have net disposable income, , of €60 or less a month. Disposable income is  income after tax/prsi/usc and deductions for reasonable living expenses and payments to cover debts that are excluded from this process)

For example – Take Home Pay €1500 a month
Single person’s reasonable  living expenses = 1029.83
Rent = €450 a month
Disposable Income =  1500 – 1029.83 – 450  =  20.87 a month
This is less than €60 – so they could apply for a Debt Relief Notice and possibly get up to €20k of debts written off

Target Dates for Insolvency Service Launch

Establishment of the Insolvency Service of Ireland (ISI)

The new Insolvency Service is urgently needed in Ireland to help sort out some of the people in mortgage arrears.

On March 13th the Department of Finance  announced some target dates for the Insolvency Service

They said that extensive work is taking place to get the new Insolvency Service of Ireland operational as early as possible in 2013 under its Director who was appointed in October 2012.

Applications from the public will not be accepted until June 2013

These are the milestones

Launch the Insolvency Service of Ireland website :  End-March 2013

Publish Guides to the three new arrangements :  End-March 2013

Put in place an information line for the public. :  End-March 2013

Publish Regulations for the authorisation and licensing of Personal Insolvency Practitioners :  End-March 2013

Publish Guidelines on a Reasonable Standard of Living and Reasonable Living Expenses for Debtors :  End-March 2013

Authorise and regulate approved intermediaries and personal insolvency practitioners :   Q2 2013

Commence taking applications from public :  June 2013

Note –  The targets have already been missed. The Insolvency Service of Ireland are now saying that they will not be launching the site until mid April

Insolvency Service of Ireland Website

The Insolvency Service of Ireland is planning to fully launch it’s website in April. The ISI  full publicity campaign launch was  scheduled for the week of  8th of April 2013. That has now been delayed until “mid April”

During April ISI plan to publish  guides to the three new arrangements: Debt Relief Notices (DRN), Debt Settlement Arrangements (DSA) and Personal Insolvency Arrangements (PIA).

The  Insolvency Service of Ireland website will contain various scenarios as to how the new arrangements may work in practice.

The ISI will also publish  Guidelines on Reasonable Standard of Living and Reasonable Living Expenses for debtors.

During that week they will also publish  information about the Regulations for the authorisation and licensing of Personal Insolvency Practitioners (PIP).

The website will be  www.isi.gov.ie

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.

Reasonable Living Expenses

One of the features of the new Insolvency Legislation is that in order to be  eligible for a Debt Relief Notice   a person’s  net monthly disposable income is €60 or less.  The disposable income is income after deductions for reasonable living expenses .

The Insolvency Service of Ireland will be publishing guidelines  very soon about reasonable living expenses to be used here in Ireland

In England  – where similar insolvency legislation has been in place for a few years –  these are the guidelines they use for deciding what kind of expenditure is classed as being ‘reasonable day-to-day living expenses’?

Normal monthly expenses, would include rent or mortgage payments (which are reasonable for the area you live in and the size of your family), food, heating and lighting, etc.
Below are some examples of things that can also be treated as reasonable expenses in England

TV licence, TV and video hire

Household insurance

Car tax and insurance (if the trustee decides your car is ‘exempt property’ and allows you to keep it)

AA/RAC or similar membership (if you still have your car)

Membership of a professional body, needed for your job (unless your employer pays for this)

Prescriptions/dental treatment/opticians

Payment under a maintenance order or Child Support Agency assessment

Mobile phone (a reasonable monthly cost)

Dry cleaning

Other expenditure items that could be considered:

Clothing

Holidays

Hairdressers

Extra curricular activities for children

After school clubs

Pets

Rent arrears

This is not meant to be a complete list, and other expenses could be considered.

 

What kind of expenditure would not be classed as ‘reasonable day-to-day living expenses’ in England ?

The following are examples of expenses which are likely to be disallowed (unless there are special circumstances):

Gym membership, any sports expenses or club membership

Additional pension contributions to enhance a pension

Private healthcare insurance

Money for gambling, alcohol or cigarettes

Satellite TV

Excessive mortgage payments

Regular payments to charitable and religious organizations/tithing

Again, the list is not meant to be complete.

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.