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Personal Debt – Has a solution been found for the taxpayer?

Has the time finally come for Ireland to deal with it’s debt crisis and ensure that the average person who cannot pay their debts can free themselves of the hardship of the last few years? The government has passed the Personal Insolvency Act 2012, which is expected to do just that. There has been a huge amount of uncertainty and criticism of this act particularly in the media and in legal and accountancy circles. Having practised law for 5 years and completed my training as a Personal Insolvency Practitioner with a view to becoming authorised as such, I have addressed my mind to the pros and cons of this act, which is an extremely complex piece of legislation.

Personal Debt – Has a solution been found for the taxpayer?

It seems to me that this act is going to be a great benefit to anyone who finds themselves in serious financial difficulty. Those who can show that they genuinely cannot pay their debts and whose financial position is unlikely to change for the foreseeable future may be able to apply for a Debt Relief Notice (unsecured debts under €20,000), Debt Settlement Arrangement (unsecured debts owing amount to over €20,000) or a Personal Insolvency Arrangement (people who have secured creditors (ie, a loan secured by a guarantor or against your house or other property) and loans of more than €20,000). These arrangements have the effect of allowing the debtor to be free of their debts within 3, 5, 6 or 7 years (depending on which arrangement is entered), while having repaid all they possibly can to their creditors.   The balance of the debt (possibly up to 70 – 80% or more) would be written off.

From a creditors point of view, with the help of a Personal Insolvency Practitioner (for DSA or PIA) or an authorised intermediary such as MABS for a DRN, they can ensure that they are genuinely receiving as high a return as their debtor can afford to pay, while accepting a write off of the remaining balance. This is a far more affordable and certain option for financial institutions who might otherwise be trying to pursue debtors through the long and uncertain court process or taking the risk that their debtors will become bankrupt, leaving far less money available for distribution among creditors. The bankruptcy provisions in this act have reduced the term of bankruptcy to 3 years, from 12, which makes this a much more attractive option that it has been historically in Ireland.

However, it is difficult to see how credit unions, banks and other creditors will work together to approve any proposal the PIP may make on the debtors behalf but what is clear is that doing so may be the most sensible (administratively and financially) option for both creditors and debtors.

The Insolvency Service of Ireland will supply a list of approved intermediaries and Personal Insolvency Practitioners as soon as the licensing process begins (expected July 2013).  In the meantime you can contact a solicitor who has some knowledge of the Act in order to discuss your best practical options.

The information expressed here is opinion and for information purposes only and is not to be construed as legal advice.  Legal advice must always be tailored for each individual case, provided after detailed discussion of each cases peculiarities.

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One Response to Personal Debt – Has a solution been found for the taxpayer?

  1. Olivia Collins May 30, 2013 at 9:56 am #

    Well done Nicola, great post. By all accounts it sounds like the best solution for both lenders and debtors (who fulfil the necessary criteria. Would like your opinion on the ‘reasonable living expenses’ outlines – are they genuinely reasonable? and can people appeal for increase in living expenses, and therefore lower amount paid to debtors?

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