Personal Insolvency Arrangement

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A Personal Insolvency Arrangement (PIA) is a statutory mechanism in Ireland for individuals who cannot repay their debts as they come due but who wish to avoid bankruptcy. [1] The arrangement is one of the three alternatives authorized under Ireland's Personal Insolvency Act 2012; Debt Settlement Arrangements (DSA) and Debt Relief Notices (DRN) are the other two arrangements. A PIA is a legal agreement between a debtor and their creditors that is mediated and administered by a Personal Insolvency Practitioner (PIP). A PIA usually lasts for a term of six years and must include both unsecured debt and secured debts.

Contents

Eligibility

Eligibility criteria for a debtor include: [2]

Furthermore, a debtor must not have any agreements mandated under the instant Act, be bankrupt, nor have accumulated 25% or more of their total debt during the previous 6 months.

Role of Personal Insolvency Practitioners [3]

The Personal Insolvency Act 2012 envisages that Personal Insolvency Arrangements can only be applied for through an approved third party, termed a Personal Insolvency Practitioner. The practitioners must be authorised by the Insolvency Service of Ireland (ISI) and include Solicitors Barristers, Qualified accountants, qualified financial advisers etc. As of 31 October 2013, there were a total of 72 registered Personal Insolvency Practitioners. [4]

Debts covered under the agreement [5]

The type of debts that can be included in a PIA are split into three types; Included, Excludable, and Excluded. [6]

  • Housing loans on the principal private residence
  • Loans on investment property
  • Mortgages/loans on buy-to-let properties
  • Personal guarantees
  • Personal loans
  • Credit Union loans
  • Business/commercial loans
  • Credit card balances
  • Store cards balances
  • Overdrafts
  • Any taxes, duties, or levies owed or require payment to the State
  • Local government charges
  • Local authority rates
  • Anything owed under the Nursing Home Support Scheme
  • Annual service charges payable to apartment and housing estate management companies
  • Any debts incurred under the Social Welfare Consolidation Act 2005
  • Court ordered family maintenance payments
  • Court fines arising from criminal offenses
  • Debts arising from personal injury or wrongful death court-awarded claims
  • Debts incurred from fraudulent loans

Agreement processes authorized under the Act [7]

Debtor insolvency declaration

Initially, the debtor is required to provide a PIP with a full disclosure of his or her financial situation. After appraisal, the PIP suggests best possible agreement. If recommended, the debtor can proceed with the PIA application and appoint the PIP to act on their behalf. A Prescribed Financial Statement is then prepared for the debtor that details key information about a debtor’s finances and clearly shows their insolvent status. It must be fully supported by appropriate financial documentation, such as pay slips, bank statements, etc. The debtor makes a statutory declaration in the presence of witnesses to confirm the Prescribed Financial Statement is true and accurate, and completes and signs the additional documents needed to accompany the Statement to apply for a Protective Certificate. The full application is sent to the Insolvency Service of Ireland (ISI).

Issuance of Protective Certificate

A court is authorized to issue a Protective Certificate to the debtor, [8] which provides PIP giving the debtor 70 days protection from creditors in which they can prepare a PIA proposal.

Preparation of PIA proposal

After issuance of the Protective Certificate, the PIP is mandated to prepare a draft PIA. [9] During the process, the market value of the secured assets can either be agreed between the debtor, creditor and PIP or the services of an independent valuer can be solicited.

Creditors' meeting and approval of PIA

After the debtor agrees to the PIA proposal, the PIP is required to call a creditors' meeting in which, through voting, creditors representing at least 65% of the total debts must agree to the proposal, including creditors representing not less than 50% of the unsecured debt and not less than 50% of the secured debt. After acceptance through the vote, the documents are required to be forwarded to ISI, which will notify the Circuit Court. Thus final approval sits with the court, and any creditor's objection will be considered by them. The law requires that after approval the debtor’s name, address details, birth year, and PIA start date are made available on the ISI website.

Execution of PIA

After formal approval by the courts and notification with ISI, debtors are required to make payments to the PIP, which in turn distributes the payments to creditors as per agreements. A PIA has a lifespan of six years.

Completion

If a debtor completes all of their obligations under the PIA, the agreement is considered complete. At completion, the PIP through creditors finalizes the treatment of the remaining debt balances: unsecured debt balances will be written off, while secured debt balances are discharged as per the PIA agreement. The PIP coordinates the removal of the debtor’s information from the Register of Personal Insolvency Arrangements within three months, making the debtor solvent.

Failure

A PIA will be deemed to have failed if creditors do not agree to the PIA or if the debtor fails to maintain his or her duties and obligations. This can be avoided if a debtor can anticipate a potential problem keeping up with payments, because their PIP may be able to arrange a variation with creditors to ensure a way can be found to continue with the PIA and prevent it from failing. [10]

Insolvency agreements in the UK

In the UK, a similar arrangement exists under the name of individual voluntary arrangement (IVA). IVA has been mandated under the Insolvency Act 1986. [11]

Related Research Articles

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Debt consolidation form of debt refinancing that entails taking out one loan to pay off many others

Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This commonly refers to a personal finance process of individuals addressing high consumer debt, but occasionally it can also refer to a country's fiscal approach to consolidate corporate debt or Government debt. The process can secure a lower overall interest rate to the entire debt load and provide the convenience of servicing only one loan or debt.

A creditor or lender is a party that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property and service. The second party is frequently called a debtor or borrower. The first party is called the creditor, which is the lender of property, service, or money.

A debtor is an entity that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this debt arrangement is a bank, the debtor is more often referred to as a borrower.

Insolvency is the state of being unable to pay the money owed, by a person or company, on time; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.

Unsecured debt

In finance, unsecured debt refers to any type of debt or general obligation that is not protected by a guarantor, or collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment. Unsecured debt are sometimes called as signature debt or personal loan. These differ from secured debt such as a mortgage, which is backed by a piece of real estate, or gold in case of Gold Loan or other securities like Fixed Deposits, Shares or insurance papers.

Bankruptcy in the United Kingdom is divided into separate local regimes for England and Wales, for Northern Ireland, and for Scotland. There is also a UK insolvency law which applies across the United Kingdom, since bankruptcy refers only to insolvency of individuals and partnerships. Other procedures, for example administration and liquidation, apply to insolvent companies. However, the term 'bankruptcy' is often used when referring to insolvent companies in the general media.

Security interest legal right granted by a debtor to a creditor over the debtors property

A security interest is a legal right granted by a debtor to a creditor over the debtor's property which enables the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations. One of the most common examples of a security interest is a mortgage: a person borrows money from the bank to buy a house, and they grant a mortgage over the house so that if they default in repaying the loan, the bank can sell the house and apply the proceeds to the outstanding loan.

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Debt management plan formal agreement between a debtor and a creditor that addresses the terms of an outstanding debt

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A protected trust deed, overseen by the Accountant in Bankruptcy, is a voluntary but formal arrangement that is used by Scottish residents where a debtor grants a trust deed in favour of the trustee which transfers their estate to the trustee for the benefit of creditors. Any person wanting to make an application for a protected trust deed must have been a resident of Scotland for at least six months prior to making the application.

United Kingdom insolvency law law

United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986 ), the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.

Under UK insolvency law an insolvent company can enter into a company voluntary arrangement (CVA). The CVA is a form of composition, similar to the personal IVA, where an insolvency procedure allows a company with debt problems or that is insolvent to reach a voluntary agreement with its business creditors regarding repayment of all, or part of its corporate debts over an agreed period of time. The application for a CVA can be made by the agreement of all directors of the company, the legal administrators of the company, or the appointed company liquidator.

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Commercial insolvency in Canada

Commercial insolvency in Canada has options and procedures that are distinct from those available in consumer insolvency proceedings. It is governed by the following statutes:

The Insolvency Service of Ireland was established under the Personal Insolvency Act 2012. The service aims to provide mutually agreed debt solution to debtors and creditors in a fair, transparent and equitable manner. The service was established in Mar 2013. The service provides three solutions to avoid bankruptcy through "Personal Insolvency Practitioner" or "Approved Intermediaries". The service started accepted applications from debtors from 9 September 2013. Mr Lorcan O’Connor is the Director of the Insolvency Service of Ireland.

British Virgin Islands bankruptcy law

British Virgin Islands bankruptcy law is principally codified in the Insolvency Act, 2003, and to a lesser degree in the Insolvency Rules, 2005. Most of the emphasis of bankruptcy law in the British Virgin Islands relates to corporate insolvency rather than personal bankruptcy. As an offshore financial centre, the British Virgin Islands has many times more resident companies than citizens, and accordingly the courts spend more time dealing with corporate insolvency and reorganisation.

Cayman Islands bankruptcy law

Cayman Islands bankruptcy law is principally codified in five statutes and statutory instruments:

Australian insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is principally governed by the Corporations Act 2001. Under Australian law, the term insolvency is usually used with reference to companies, and bankruptcy is used in relation to individuals. Insolvency law in Australia tries to seek an equitable balance between the competing interests of debtors, creditors and the wider community when debtors are unable to meet their financial obligations. The aim of the legislative provisions is to provide:

References

  1. ↑ "Personal Insolvency Arrangements". Government of Ireland. Retrieved 2 November 2013.
  2. ↑ "Eligibility criteria for a Personal Insolvency Arrangement". Irish Statue Book, Office of AG, Government of Ireland. Retrieved 2 November 2013.
  3. ↑ "A PERSONAL INSOLVENCY PRACTITIONER" (PDF). INSOLVENCY SERVICE OF IRELAND. Retrieved 2 November 2013.
  4. ↑ "Register of Personal Insolvency Practitioners". Insolvency Service of Ireland. Retrieved 2 November 2013.
  5. ↑ "Debt solutions > PIA". Insolvency Service of Ireland. Retrieved 2 November 2013.
  6. ↑ "Hundreds of new debt arrangements 'in the pipeline', Insolvency Service of Ireland says". The Irish Times. Retrieved 2 November 2013.
  7. ↑ "Scheme of Personal Insolvency Bill" (PDF). Insolvency Service of Ireland. Retrieved 2 November 2013.
  8. ↑ "What is a Protective Certificate?". ISI Official Website. Retrieved 2 November 2013.
  9. ↑ "Insolvency Process". Personal-Insolvency-Arrangement.ie. Retrieved 2 November 2013.
  10. ↑ "What happens when a PIA fails?". ISI website. Retrieved 2 November 2013.
  11. ↑ "Options for paying off your debts". UK Government Government Digital Service. Retrieved 18 October 2013.
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