Personal Insolvency Arrangements

Personal Insolvency Arrangements – How will they work ?

New Insolvency laws are due to come into force in Ireland in 2013
One feature of the new rules is a  Personal Insolvency Arrangement.

If you have a mixture of secured and  unsecured debts that you cannot repay – you may be able to enter into a  Personal Insolvency Arrangement or PIA.
Unsecured debts are those  such as credit card, personal loans, overdrafts etc.  Mortgages are secured debts  – these might be on your own  principal private residence or on a  buy-to-let or investment property.

A PIA is for people with debts between €20,000 and €3,000,000 who are insolvent and it is unforeseeable that over the course of a 5  year period they will  become solvent

(If you are insolvent it means you are unable to pay your  debts in full as they fall due.)

A personal Insolvency Arrangement will  provide a mechanism for  debt settlement and restructuring if you are insolvent but  have the means to make part payments of your debts over a period of years.

An application for a Personal Insolvency Arrangement has to be made via a personal insolvency practitioner (PIP) . They will complete a standard financial statement with you setting out your financial affairs in full. The personal insolvency trustee will advise you about your  options and will assess whether you meet the eligibility criteria for a PIA. Those criteria include the following:

· You  must be “cash-flow”  insolvent (i.e. unable to meet your debts in full as they fall due);

· it is unforeseeable that over the course of a five year period, you will become solvent;

· a debt settlement arrangement (DSA) would not be a viable alternative to a PIA as a mechanism to make you  solvent within a period of five years.

If the personal insolvency practitioner is satisfied that you meet the above eligibility criteria and is satisfied that there is a reasonable possibility that a PIA would be capable of making you solvent within six years, the personal insolvency trustee applies to the Insolvency Service for a protective certificate.
The Insolvency Service carries out certain checks in relation to the application and issues a protective certificate which protects you from action by your creditors for a minimum of 40 working days (and up to a maximum of [60] working days, subject to extension for a further [10] working days).

The personal insolvency trustee notifies your creditors and sends them prescribed information, including information about your financial situation.
The personal insolvency trustee considers any submissions from creditors and prepares a proposal for a PIA, taking into account what you can afford to pay to your creditors while leaving you  with sufficient income to maintain a reasonable standard of living.

The PIA can include things such as writing down mortgage debts , writing down unsecured debts. You cannot be forced to sell your home as part of the arrangement.

If  you consent to the proposal –  the PIP then summons a creditors’ meeting to vote on the proposal. In considering whether to vote in favour of the proposal, the creditors take into account whether the financial outcome for them under the PIA is likely to be better than the estimated financial outcome for them in alternative scenarios such as enforcement or bankruptcy.

The arrangement is accepted if creditors representing 65% of the value of the total debt (secured and unsecured) vote in favour and if more than 50% of the secured creditors and 50% of the unsecured creditors vote in favour.

If your financial circumstances improve over the course of the PIA  you are obliged to notify the PIP and the  terms of the PIA may be varied to provide for increased payments to the creditors.

If  you don’t  abide by the terms of the PIA (e.g. there is a 6 month arrears default in making the payments due under the PIA) the arrangement will fail and you  will again be liable in full for the debts. The creditors can then take enforcement action against you  or petition for your bankruptcy.

If you  successfully complete the PIA, all of your  unsecured debts  are discharged.  You will remain liable to pay the mortgage in respect of his principal private residence on the restructured terms agreed under the PIA.