A Quick Look – Personal Insolvency Act 2012

The Personal Insolvency Act 2012 is complicated and may be cumbersome to apply.  Only time will tell if it’s numerous provisions and procedures are feasible, but I suppose at best it is an attempt to try and balance some of the problems that the negative equity crisis has brought.  The one major positive element is the reduction in the period of a bankruptcy from 12 to 3 years. 

The first thing that strikes me about the Personal Insolvency Act 2012 is the amount of jargon that it involves.  It is hard to give you a quick overview of the Act as you need to spend at least 5-10 minutes learning the terminology.  I will make an attempt below but don’t take this information as anything more than a very quick overview of what to expect.

All of the proposed different insolvency arrangements under the Act either need the consent of 65% of the Creditors, or have strict criteria that very few people might meet. The “big stick” of reducing bankruptcy from 12 years to 3 years is the main encouragement for the Banks and finance institutions to come to an agreement or risk losing even more of the money in a bankruptcy.

Jargon

Below is a quick overview of the 3 types of arrangements:

  1. Personal Insolvency Arrangement (“PIA”).  This looks like it is mainly for mortgages and secured debt of up to €3 million.  Creditors effectively have a veto in that you need 65% of the Creditors (in value) to approve the arrangement.  The proposal goes through an Insolvency Practitioner who fills in the forms and checks that all of the details are correct and backed up by evidence.  A protective certificate is issued by the Court to stop any legal action against the Debtor for up to 70 days (this can be extended) and ultimately the arrangement becomes a Court Order – allowing protection for up to 6 years (this can also be extended).
  2. Debt Settlement Arrangement (“DSA”).  This is an arrangement for unsecured Creditors and seems to be aimed at large amounts (over €20,000).  Again the application comes through an Insolvency Practitioner and needs approval by 65% of the Creditors.   This veto would appear to make the procedure unlikely, however the changes to the bankruptcy laws might convince unsecured creditors to consider the arrangement.  Similar to a PIA, the Court can issue a 70 day certificate to protect the Debtor while arrangements are being made.  If approved, the matter becomes an Order of Court for 5 years (with a possible 1 year extension).
  3. Debt Relief Notice (“DRN”). This is for debts of up to €20,000 which are unsecured and appear aimed at credit cards and utility bills.   There is a strict criteria such as having no saving and a low disposable income.  From first glance, I am not sure if you can have any assets (i.e. a house) but it would appear unworkable if this is the case.  This proposal is put to the insolvency service through an approved intermediary which is likely to be the existing Money Advice and Budgeting Service (MABS”)

There are a few other important phrases. There are new roles –  “Insolvency Practitioners” – and a new organisation – the “Insolvency Service”.   Individuals can apply to become Insolvency Practitioners by applying to the newly created Insolvency Service (a government department) for approval.  It sounds like this is an opportune role for an existing Accountant or Financial Adviser (such as mortgage brokers).  It will be important to ensure that your Insolvency Practitioner has your best interest at heart.

Finally, involved throughout this procedure are referrals to the Court. It is still going to be important to involve your Solicitor to either liaise with the Insolvency Practitioner or possibly argue your case to the Court if there is some opposition to it.  I am sure we will be all looking at the Personal Insolvency Act 2012 in more detail as it comes into force.  The plan appears to be that in the first part of 2013 the Insolvency Service will be set up.  Insolvency Practitioners then need to be approved and appointed and this procedure might take longer than expected.

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