The Personal Insolvency Act allows for Debt Settlement Arrangements. When the arrangement is approved by 65 percent in value of creditors, it becomes binding on all of them. If the terms of the arrangement are completed, then after the period of the agreement (generally five years) the debtor is fully discharged from the debts.
A debtor who wishes to become party to a Debt Settlement Arrangement must submit a written statement of his financial affairs, including all debts, liabilities and assets together with such information as may be prescribed to a personal insolvency practitioner. The practitioner must advise him on the basis of information furnished in relation to the following
- options for addressing financial difficulty;
- whether he satisfies the criteria for any of the insolvency processes;
- information regarding the likely costs of an arrangement;
- information regarding fee arrangements and other conditions of appointment of the personal insolvency practitioner; and
- other prescribed information.
Following the meeting, the debtor may appoint a personal insolvency practitioner, who need not necessarily be the practitioner to whom the initial proposal is made. The personal insolvency practitioner must confirm his consent to so acting.
The debtor is obliged to disclose fully, his financial affairs to the personal insolvency practitioner. The practitioner is to examine his affairs and assist the debtor in completing the prescribed financial statements. The prescribed financial statement must give a full and honest disclosure of the debtor’s financial affairs.
PIP Review and Advice
The personal insolvency practitioner must, on the basis of the information received, advise the debtor in relation to
- financial options;
- eligibility for a Debt Settlement Arrangements or personal insolvency arrangements; and
- the personal insolvency practitioner’s opinion as to whether it would be more appropriate to enter a Personal Insolvency Arrangement or a Debt Settlement Arrangement.
The advice is to consider the appropriateness of the proposed arrangements, having regard to
- the debtor’s financial circumstances;
- his ability to meet commitments associated with the arrangement;
- the nature of the debt;
- the complexity of the case;
- the likelihood of arrangement being formulated in terms that would be acceptable to a majority of creditors or be an acceptable alternative to bankruptcy.
The PIP must advise on the general effect of the proposal, including its effect on the debtor’s credit rating; the consequence of non-compliance and such other options as may be open to the debtor including negotiations with the creditors on agreed terms, a debt relief notice and bankruptcy.
Where a debtor has an interest in or an entitlement under a pension not yet in payment, it is not treated as an asset of the debtor unless the following conditions apply. If the debtor can perform an act or exercise an option, so as to cause him to receive from or at the request of the person administering the pension an income, or other money he is deemed to be in receipt of such income or amount of money.
This is the case where the debtor is entitled to do the act or exercise the option
- at the date of the making of the application for a protective certificate,
- was entitled at any time before the date of the making of the application for a protective certificate, or
- will become entitled within 6 years and 6 months of the date of the making of the application for a protective certificate in relation to a Debt Settlement Arrangement or within 7 years and 6 months of the date of the making of the application for a protective certificate in relation to a Personal Insolvency Arrangement,
This does not remove the obligation of a debtor making an application for a protective certificate to make disclosure of any interest in or entitlement under a relevant pension arrangement in completing the Prescribed Financial Statement.
Instructions to PIP
Upon receiving the advice, the debtor may instruct the PIP in writing to make a proposal for a Debt Settlement Arrangement or a Personal Insolvency Arrangement. He is to instruct whether he wishes the personal insolvency practitioner to make an application for a protective certificate.
Upon receipt of the instruction to seek a protective certificate for either a Debt Settlement Arrangement or a Personal Insolvency Arrangement, the PIP must prepare a statement confirming that he or she is of the opinion that
- the information in the prescribed financial statement is complete and accurate;
- that the debtor is eligible for one or other arrangement and having regard to the circumstances, there is no likelihood of the debtor becoming solvent within five years;
- having regard to the personal financial statement that it is appropriate to make a proposal for the one or other arrangement; and
- there is a reasonable prospect that the arrangement would facilitate the debtor becoming solvent within a period of no more than five years.
An eligible creditor may make a proposal for a Debt Settlement Arrangement through a personal insolvency practitioner. A joint application may be made when each debtor is jointly liable for all the debts covered. A person may enter a Debt Settlement Arrangement once only.
A person is eligible to enter a Debt Settlement Arrangement provided that
- he is domiciled in the State or within one year before the application for a protective certificate, he has ordinarily resided in the State or had a place of business within the State;
- he is insolvent;
- he has completed a prescribed form of financial statement and made a declaration, confirming it to be true and accurate;
- he has received a certificate from a personal insolvency practitioner of his opinion that the debtor is not likely to become solvent within five years;
- the debtor is not an undischarged bankrupt, a discharged bankrupt subject to a payment order, covered by a Debt Relief Notice, subject to a Personal Insolvency Arrangement or subject to a bankruptcy arrangement;
The personal insolvency practitioner in issuing the above certificate must take account of the current liabilities, contingent and prospective liabilities and the current and prospective assets and income of the debtor.
The following conditions apply unless the debtor has, on notice to the Insolvency Service, made an application to the appropriate court which has made an order stating that it is satisfied that the current insolvency of the debtor arises by reason of exceptional circumstances or other factors which are substantially outside the control of the debtor and that it would be just to permit the debtor to make a proposal for a Debt Settlement Arrangement.
The conditions are that the debtor has not—
- been the subject of a protective certificate issued less than 12 months prior to the date of the application for a protective certificate,
- had his or her debts discharged pursuant to a Debt Relief Notice less than 3 years prior to the date of the application for a protective certificate;
- had his or her debts discharged pursuant to a Personal Insolvency Arrangement less than 5 years prior to the date of the application for a protective certificate, or
- been discharged from bankruptcy less than 5 years prior to the date of the application for a protective certificate.
A debtor is not eligible to make a proposal for a Debt Settlement Arrangement where 25 percent or more of his or her debts (other than excluded debts and secured debts) were incurred during the period of 6 months ending on the date on which the application is made for a protective certificate.
Notice to Insolvency Service
Once instructed, the personal insolvency practitioner must notify the Insolvency Service of the intention to enter a Debt Settlement Arrangement and apply for a protective certificate on behalf of the debtor. The application must include
- the PIP’s statement in relation to the debtor’s prescribed financial statement;
- the prescribed financial statement;
- confirmation by the debtor of eligibility and qualification;
- the above statutory declarations;
- schedules of creditors and debtors stating the amount of each debt due to that creditor, whether, as respects the debt concerned, the creditor is a secured creditor and, if so, the nature of the security concerned, and such other information as may be prescribed;
- consent to the disclosure of all personal data to the Insolvency Service and creditors to the extent required in connection with the arrangement
- authority to carry out verification.
Further Information and Enquiries
The Insolvency Service is entitled to request further information as it requires, before deciding to apply to Court for a protective certificate. It may defer consideration of the application until it is furnished. If it is not furnished within 14 days or such longer period as may be allowed, the application is deemed withdrawn.
The Insolvency Service makes enquiries to satisfy itself in relation to the qualification of the PIP, the eligibility of the debtor and that the application is not frivolous or an attempt to frustrate the efforts of creditors through recover debts. The Service may make enquiries to vouch for the eligibility of the debtor but may rely on the application lodged where there is no reason to believe the information is incomplete or inaccurate.
The Insolvency Service may make enquiries as it sees fit in relation to the completeness and accuracy of the prescribed financial statement. It may make enquiries, for example, of banks, other financial institutions, creditors, in relation to employment and income, Department of Social Protection and income tax.
Persons and bodies to whom the Service directs enquiries are obliged to answer as soon as reasonably practicable. Information held by the Revenue Commissioners, local authorities, Department of Social Protection and other public bodies may be furnished to the Service.
The debtor must correct any error in his statements on becoming aware of it.
Court Issues Protective Certificate Informally
Where the application appears to be in order, the Insolvency Service may apply to the court for a protective certificate. The insolvency practitioner is notified. The court reviews the documentation, and if satisfied in relation to eligibility and other requirements, it issues a protective certificate.
The protective certificate lasts for 70 days. The court may on application extend it for up to 40 days where the debtor and PIP have acted in good faith and with reasonable expedition, and the court is satisfied that the extension is likely to facilitate acceptance of a Debt Settlement Arrangement.
The protective certificate is registered on the Register of Protective Certificates. The PIP must notify creditors specified in the schedule, of the fact of its issue and the proposal to make a Debt Settlement Arrangement. It must contain a notification of the effect of the certificate and the rights of the creditor to appeal to the court.
A creditor who is aggrieved by the issue of the protective certificate may apply to the court for an order that it is not to apply to him, within 14 days. The notice must be given to the Insolvency Service; the PIP and such other persons as may be directed. A party will generally bear his own costs unless serious injustice would be caused.
The court may grant an order directing that the certificate is not to apply if it is satisfied that failure to do so would cause irreparable loss to the creditor which would not otherwise occur and that no other creditor to whom the protective certificate applies will be unfairly prejudiced. The court may direct that monies recovered be held on trust pending further determination by the court.
Effect of Protective Certificate
The protective certificate protects the debtor against the initiation of legal proceedings, continuation of legal proceedings, execution of judgments, recovery of goods and unrequested contact from creditors regarding payment of debt. In the case of a debtor who has entered a secured lending agreement, the protective certificate may not be used as a ground to amend or terminate the agreement or claim an accelerated payment.
The protective certificate prevents a bankruptcy application and proceedings in bankruptcy. No enforcement of security, execution or another process may be commenced without leave of court. Leave if granted, may be subject to such conditions as the court may deem appropriate, pending the outcome of the attempts to reach the Debt Settlement Arrangement. Creditors may take steps against guarantors and persons who are jointly liable with the debtor. During the protective period, the running of Statute of Limitations is frozen.
Notice to Creditors and Proof of Debt
Where the protective certificate issues, the PIP is to give notice to the creditors that he has been appointed for the purpose of making a Debt Settlement Arrangement and invite them to make submissions regarding the debt concerned and the matters are to be dealt with as part of the arrangement. He may consider submissions made regarding the debts and the manner in which they might be dealt with including submissions regarding previous or existing offers of settlement.
Creditors must prove their debts in the same manner as bankruptcy. Generally, the steps and procedures in relation to the proof of debts in bankruptcy apply as if the court and the official assignee were the insolvency practitioner. A creditor who does not comply with the conditions is not entitled to vote at meetings or to share in distributions. A creditor may be allowed to prove late.
Mandatory Terms; Basic Requirements
The terms of the debt settlement agreement are those agreed by the debtor and creditor subject, however, to the inclusion of certain mandatory requirements.
The maximum duration of a Debt Settlement Arrangement shall be 60 months. A Debt Settlement Arrangement may provide that this period may be extended for a further period of not more than 12 months in such circumstances as are specified in the terms of the Debt Settlement Arrangement.
Where the debtor performs all of his or her obligations specified in a Debt Settlement Arrangement, he or she shall stand discharged from the remainder of the debts covered by the Debt Settlement Arrangement.
A Debt Settlement Arrangement shall make provision for the manner in which the debtor’s debts are to be treated in the event of the death or mental incapacity of the debtor.
Mandatory Terms; Living Standard and Home
A Debt Settlement Arrangement shall not require the debtor to sell any of his or her assets that are reasonably necessary for the debtor’s employment, business or vocation unless the debtor explicitly consents to such sale;
A Debt Settlement Arrangement 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 the debtor and his or her dependents;
The Insolvency Service may publish a Code of Practice providing guidance on the above matters. In determining whether a debtor would have sufficient income to maintain a reasonable standard of living for the debtor and his or her dependents under the Debt Settlement Arrangement. The insolvency practitioner must have regard to those guidelines.
A Debt Settlement Arrangement shall not require that the debtor dispose of his or her interest in his or her principal private residence or to cease to occupy such residence unless conditions specified in the legislation apply. See further below in relation to this matter.
Mandatory Terms; Costs Fees and Tax
The Debt Settlement Arrangement is to make provision for the costs and outlay of the insolvency practitioner and on-going administration costs. It is to indicate the likely cost be incurred, the basis of charge and specify the person by whom they are to be payable and the manner payable.
A Debt Settlement Arrangement shall indicate the likely amount of the fees, costs and outlays to be incurred, or where this is not practicable, the basis on which those fees, costs and outlays will be calculated, and specify the person or persons by whom those fees, costs and charges are payable and the manner in which they have been or are to be paid;
The Debt Settlement Arrangement shall make provision for the payment of all tax liabilities incurred by the debtor, or by the personal insolvency practitioner, under the Taxes Consolidation Act during the administration of the Arrangement. The tax liabilities of the personal insolvency practitioner shall be payable in priority to any payments to creditors.
Any failure by the debtor to comply with the terms regarding tax shall be a breach of the Arrangement such that the Collector-General may withdraw his or her agreement to accept the compromise contained in the Arrangement.
Mandatory Terms; Review and Variation
A Debt Settlement Arrangement is to provide for review at regular intervals, not greater than 12 months during the agreement. The circumstances of the debtor shall be reviewed by the personal insolvency practitioner. The review is to include preparation of a new prescribed financial statement by the debtor, a copy of which together with the statement by the personal insolvency practitioner as to whether he believes it to be complete and accurate, is to be sent to each creditor.
The terms of a Debt Settlement Arrangement shall specify the circumstances where the personal insolvency practitioner shall be obliged to propose a variation of the Debt Settlement Arrangement in accordance with the relevant provisions.
Discharge and Release of Debts
The maximum period for Debt Settlement Agreement is to be five years provided that it may be extended by up to 12 months in the circumstances specified in the agreement. Where the debtor performs his obligations, he stands discharged at the end of the period in relation to the remainder of the debts covered by it.
A Debt Settlement Arrangement may not release a debtor from the following types of debt unless it explicitly provides for the compromise of the debt and the relevant creditor agrees in writing to accept the compromise
- family maintenance orders,
- local authority charges and rates,
- nursing home support payments,
- sums due to multi-unit development management companies,
- obligations for personal injuries to a third party and on death
- debts and loans obtained through fraud misappropriation, embezzlement and fraudulent breach of trust.
Debt Settlement Arrangements are not to release criminal fines and monies repayable under proceeds of crime legislation.
Possible Other Terms
The Debt Settlement Arrangement may include such matters as may be approved by the requisite majority of the creditors. This may include
- lump sum payments from the debtor’s own resources or from other persons;
- payment arrangements;
- the transfer of certain assets to a third person to hold them for the benefit of the creditors,
- the transfer of assets to creditors generally or to a specified creditor;
- the sale of assets and payment of proceeds to the creditors.
Payments may be charged or guaranteed by a debtor or by another.
Treatment of Certain Creditors
Unless otherwise agreed, creditors of the same class are to be treated equally. Where they are not treated equally, the reasons for such provision must be stated.
Preferential creditors (certain Revenue and employment creditors accrued within a certain period) are to be paid in priority unless the creditor concerned otherwise agrees and provision is made in this regard in the Debt Settlement Arrangement. The creditor concerned must satisfy the PIP that the debt is preferential.
The Debt Settlement Arrangement is not to affect the rights of secured creditors to enforce their security. A secured creditor cannot participate in relation to a secured debt. A secured debt is one secured by any assets or property. The insolvency practitioner and debtor make share information with the secured creditor in connection with the Debt Settlement Arrangement.
The secured creditor is not deemed to participate or be bound by a Debt Settlement Arrangement, by reason of entering an agreement with the debtor to vary the terms of the secured debt, following contact between the debtor and creditors or personal insolvency practitioner.
In formulating a Debt Settlement Arrangement, the PIP is, insofar as reasonably practicable and having regard to the matters set out below, to formulate the proposals on terms that will not require the debtor to dispose of his interest in his principal residence. The personal insolvency practitioner is to consider any appropriate alternatives.
The matters to which regard is to be had include
- the costs incurred in remaining in occupation including rent, mortgage loan repayment, insurance, management company fees and taxes;
- the debtor’s income and financial circumstances as disclosed,
- the ability of others to contribute to the cost referred to;
- the reasonable living accommodation needs of the debtors and his dependents, having regard to those needs and the cost of alternative accommodation.
Where the debtor confirms that he does not wish to remain in occupation of the principal private residence or the personal insolvency practitioner forms the view that taking account of the above matters, the costs of continuing to reside in the principal residence are disproportionately large, he may formulate arrangements on terms that require the debtor to cease to occupy his principal private residence.
The arrangement shall not contain terms to dispose of the interest in the principal private residence unless the debtor has obtained independent legal advice or has been advised to obtain such advice and has refused to do so. The provisions of the family home and civil partnership protection legislation must be complied with.
Exclusion of Excludable Debt
An excludable debt may be included in a proposal for a Debt Settlement Arrangement only where the creditor concerned has consented or is deemed to have consented, in accordance with the below provisions, to the inclusion of that debt in such a proposal.
he types of debt that are excludable and may be covered if the creditor agrees are:
- taxes, duties, charges or levies owed to the State, the Local Property Tax, VAT, capital taxes Service charges owed to local authorities
- money owed under the Nursing Homes Support Scheme
- money owed to the Department of Social Protection, such as overpayments
- debts due to owners’ management companies in respect of annual service charges or contributions due to multi-unit developments.
Where a PIP proposes to include an excludable debt in a proposal for a Debt Settlement Arrangement, he or she shall, without delay, notify the creditor concerned of that fact, which notification shall be accompanied by—
- such information about the debtor’s affairs (including his or her creditors, debts, liabilities, income and assets) as may be prescribed, and
- a request in writing that the creditor confirms, in writing, whether or not the creditor consents, for the purposes of this section, to the inclusion of the debt in a Debt Settlement Arrangement.
A creditor shall comply with a request within 21 days of receipt of the notification Where the creditor does not comply; the creditor shall be deemed to have consented to the inclusion of that debt in a proposal for a Debt Settlement Arrangement.
Where, as respects, a debtor who has entered into a Debt Settlement Arrangement which is in force, a creditor or the personal insolvency practitioner concerned considers that a debtor has made excessive contributions to a pension arrangement, the creditor or personal insolvency practitioner may make an application to the appropriate court for relief.
The provisions apply to contributions to a pension arrangement made by the debtor at any time within 3 years prior to the making of the application for a protective certificate on behalf of the debtor.
Where the appropriate court considers that having regard in particular to the matters referred to below the contributions to a relevant pension arrangement were excessive it may:
- direct that such part of the contribution concerned (less any tax required to be deducted) be paid by the person administering the relevant pension arrangement to the personal insolvency practitioner for distribution amongst the creditors of the debtor, and
- make such other order as the court deems appropriate, including an order as to the costs of the application.
Factors in Relation to Excessive Contributions
The relevant factors in relation to whether the contributions made by the debtor to a relevant pension arrangement were excessive are:
- whether the debtor made payments to his or her creditors in respect of debts due to those creditors on a timely basis at or about the time when the debtor made the contribution concerned;
- whether the debtor was obliged to make contributions of the amount or percentage of income as the payments actually made under his or her terms and conditions of employment and if so obliged, whether the debtor or a person who as respects the debtor is a connected person could have materially influenced the creation of such obligation;
- the amount of the contributions paid, including the percentage of total income of the debtor in each tax year concerned which such contributions represent;
- the amount of the contributions paid, in each of the 6 years prior to the making of the application for a protective certificate on behalf of the debtor including the percentage of total income of the debtor concerned which such contributions represent in each of those years;
- the age of the debtor at the relevant times;
- the percentage limits which applied to the debtor in relation to relief from income tax for the purposes of making contributions to a relevant pension arrangement in each of the 6 years prior to the making of the application for a protective certificate on behalf of the debtor; and
- the extent of provision made by the debtor in relation to any relevant pension arrangement prior to the making of the contributions concerned.
References and Sources
Burke & Comyn Personal Insolvency Law 2014
Bracken Practioner’s Personal Insolvency Handbook 2013
Law Society (Wright) Insolvency Law 2009
Sanfey & Holohan Bankruptcy Law & Practice2nd Ed 2010
Farry, Holohan Consolidated Bankruptcy & Personal Insolvency Legislation2013
Forde, Kennedy & Simms Company Insolvency 2015
Forde & Simms Bankruptcy Law 2nd Ed 2009
Insolvency Law and Practice (Report of the review committee chaired by Sir Kenneth Cork CBE, 1982, Cmnd 8558) (the Cork report)
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Marsh Bankruptcy Insolvency and the Law 2016
WW McBryde, Bankruptcy 2nd Ed, 1995
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Personal Insolvency Legislation
Personal Insolvency Act 2012
Personal Insolvency (Amendment) Act 2015
Personal Insolvency Act 2012 (Part 6) (Commencement) Order 2013, S.I. No. 14 of 2013
Personal Insolvency Act 2012 (Commencement) (No. 2) Order 2013, S.I. No. 63 of 2013
Personal Insolvency Act 2012 (Establishment Day) Order 2013, S.I. No. 64 of 2013
Personal Insolvency Act 2012 (Authorisation and Supervision of Personal Insolvency Practitioners) Regulations 2013, S.I. No. 209 of 2013
Personal Insolvency Act 2012 (Authorisation of Approved Intermediaries) Regulations 2013, S.I. No. 216 of 2013
Personal Insolvency Act 2012 (Personal Insolvency Practitioner Authorisation and Renewal of Authorisation Prescribed Fees) Regulations 2013, S.I. No. 246 of 2013
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Personal Insolvency Act 2012 (Value of interest in property) Regulations 2013, S.I. No. 330 of 2013
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Personal Insolvency Act 2012 (Prescribed Protective Certificate Debt Settlement Arrangement Application Form) Regulations 2013, S.I. No. 332 of 2013
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Personal Insolvency Act 2012 (Schedule of Creditors) Regulations 2013, S.I. No. 334 of 2013
Personal Insolvency Act 2012 (Procedures for the Conduct of Creditors’ Meetings) Regulations 2013, S.I. No. 335 of 2013
Personal Insolvency Act 2012 (Notification in relation to Excludable Debt) Regulations 2013, S.I. No. 337 of 2013
Personal Insolvency Act 2012 (Additional Information to be contained in the Registers) Regulations 2013, S.I. No. 356 of 2013
Personal Insolvency Act 2012 (Part 4) (Commencement) Order 2013, S.I. No. 462 of 2013
Personal Insolvency Act 2012 (Prescribed Fees in Bankruptcy Matters) Regulations 2013, S.I. No. 465 of 2013
Personal Insolvency Act 2012 (Prescribed Financial Statement) Regulations 2014, S.I. No. 259 of 2014
Personal Insolvency Act 2012 (Regulatory Disclosure Statement of a Personal Insolvency Practitioner) Regulations 2014, S.I. No.319 of 2014
Personal Insolvency Act 2012 (Written Statement Disclosing All of the Debtor’s Financial Affairs) Regulations 2015, S.I. No. 416 of 2015
Personal Insolvency Act 2012 (Prescribed Fees) Regulations 2015, S.I. No. 620 of 2015
Personal Insolvency Act 2012 (Renewal of Authorisation of Personal Insolvency Practitioners) Regulations 2016, S.I. No.226 of 2016
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Personal Insolvency (Amendment) Act 2015 (Commencement) (No. 2) Order 2015, S.I. No. 514 of 2015