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Publication of Draft Heads of Personal Insolvency Bill 2012

The Minister for Justice and Equality has published the Heads of the Personal Insolvency Bill.

This legislation is expected to be in place by the end of 2012 and will overhaul the existing bankruptcy and personal insolvency regime. In particular the legislation will seek to introduce non-judicial voluntary arrangement solutions for insolvent debtors. The legislation will also reduce the bankruptcy period from 12 years to 3 years. A new government agency, The Insolvency Service will be set up to administer and oversee non-judicial arrangements.

The voluntary arrangement process will have three elements 

1.    Debt Relief Certificate

Where an individual (debtor) has unsecured debts of less than €20,000, disposable income of less than €60 per month and total assets of less than €400 (excluding a vehicle with a maximum permitted value of €1,200) they can apply to the Insolvency service for a debt relief certificate. 

When the certificate has been granted by the Insolvent Service all debts (including interest) are frozen for 12 months from that date and creditors can take no action against the debtor during that that period. 

At the end 12 month moratorium period if the debtor’s personal circumstances have not changed or improved they will be granted a debt relief certificate by the Insolvency Service which will in effect mean that their debts are written off. The draft legislation provides that a person is only entitled to two debt relief certificates in their lifetime. 

2.    Debt Settlement Arrangement

Where an individual (debtor) has unsecured debts of more than €20,000 they can apply for a debt settlement arrangement. This process will involve engaging a personal insolvency trustee who will assess the financial position of the debtor based on a detailed statement of affairs and nominate or propose an arrangement for the repayment of the debts within a 5 year timeframe at a meeting of creditors. If 65% or more of the creditors agree to the proposal then it is binding on all creditors. Once the debt settlement arrangement has been approved the personal insolvency trustee will supervise it for the duration of the agreement. At the end of the arrangement once the debtor has adhered to the arrangement any remaining debts are written off. Where a debtor has not adhered to the agreement their creditors can seek to have the arrangement annulled and can take enforcement proceedings against the debtor.

Only one debt settlement arrangement will be permitted in a ten year period.

3.    Personal Insolvency Arrangement

This arrangement will be used in circumstances where the individual (debtor) has secured and unsecured debts of between €20,000 and €3,000,000. This arrangement is similar to a debt settlement arrangement in that a personal insolvency trustee is engaged to nominate an arrangement to creditors. The insolvency office will issue a protection certificate to the personal insolvency trustee to prevent creditors from taking enforcement action against the debtor for 60 days while the scheme of arrangement is being prepared. 

For a personal insolvency arrangement to be effective it will be necessary to obtain agreement from at least 55% of unsecured creditors and 75% of secured creditors.

A personal insolvency arrangement will only be permitted where it can be clearly demonstrated that the debtor would not be suitable for a debt settlement arrangement on the grounds that they will remain insolvent for the next five years. Unsecured creditors are offered a percentage of the debt owed to them which is paid over a six year term. 

If the debtor’s mortgage on their private residence exceeds its value (i.e is in negative equity) and the debtor is unable to service the mortgage it may be possible in certain circumstances to reach agreement to have the mortgage written down to an agreed and affordable level. Where the debtor has investment properties these will be sold and the proceeds distributed to secured creditors. Where there is a residual balance owed the debtor must reach agreement to pay a percentage of this unsecured debt over a period of six years.

The proposed changes to bankruptcy legislation are as follows

-          A minimum debt included on a High Court bankruptcy petition will be increased from €1,900 to €20,000.

-          Where a bankruptcy petition is granted all of the debtor property will come under the control of the official assignee. 

-          All earnings of the debtors (after agreed living expenses) will be made available to their creditors.

-          The individual will be automatically discharged from bankruptcy after three years

-          The bankruptcy period can be extended to 8 years by the Court in circumstances where the bankrupt was non-compliant or engaged in fraudulent or dishonest behaviour.

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