It has been a very long time coming but yesterday, the Minister for Justice, Equality and Defence Alan Shatter introduced a new bankruptcy Bill for individuals in Ireland. In a country where one in seven mortgage accounts is either in arrears for more than 90 days or has been restructured with less than the contracted monthly mortgage payment being made, there is obviously a debt problem. In fact when former US president Bill Clinton addressed a business forum in Ireland last October 2011, he said that the biggest challenge facing this State was the mortgage crisis. Under the existing draconian bankruptcy rules which involve a bankruptcy period of five to 12 years, there are about 30 bankrupts per annum in a country of 4.6m, by comparison the UK has over 60,000 per annum in a country of 62m, a rate that is more than 500 times that of Ireland. The new Bill is aimed at modernising our bankruptcy laws and providing an efficient and humane system which balances the needs of debtors and creditors.
The verdict? Certainly the scheme for those with unsecured debts is comparable to the rules in the UK and should provide for a quick and easy means for those who can’t pay to have a quick resolution. However, all eyes have been on those with secured debts, particularly mortgages, and the provisions here are quite restricted.
There are two aspects of the bankruptcy legislation as it relates to secured debt which differ from other jurisdictions with which I am familiar, and which have the potential to undermine the promised potential of this legislation
Firstly, the person seeking bankruptcy must be able to demonstrate that they will not be able to pay their debts over a five-year period. According to the Bill “it is his or her opinion there is no likelihood of the debtor becoming solvent within the period of 5 years commencing on the date of the making of the declaration” So if you are a mortgage-borrower with six months of arrears today and a property which has declined 50% from peak, on what basis can you demonstrate that you will not be able to become solvent in five years. Obviously, it will depend on the future direction of house prices and there is no guidance given in the legislation as to how future asset prices might be determined.
Secondly, the person seeking bankruptcy must be able to demonstrate that they have co-operated with their mortgage lender for a period of at least six months and that they have not agreed to any alternative arrangement. The Bill says “the debtor has made a statutory declaration declaring that he or she has co-operated for a period of at least 6 months with his or her creditors who are secured creditors as respects the debtor’s principal private residence in accordance with any process relating to mortgage arrears operated by the secured creditors concerned which has been approved or required by the Central Bank of Ireland and which process relates to the secured debt concerned and that notwithstanding such co-operation the debtor has not been able to agree an alternative repayment arrangement with the secured creditor concerned, or that the secured creditor has confirmed to the debtor in writing its unwillingness to enter into an alternative repayment arrangement”
In other words, notwithstanding the fact that you are hopelessly insolvent with massive negative equity, your bank can seemingly stop your bankruptcy bid by providing you with temporary relief on your monthly mortgage commitments.
Interestingly if you are already a bankrupt like Sean Quinn or Anglo’s Sean Fitzpatrick, then you can’t seek bankruptcy under this legislation. And if you have debts in excess of €3m, again there is no change to your prospects as you will not be covered by this new Bill. The two exemptions are curious.
The Bill will now be subjected to debates in the Dail and Seanad, and the expectation is that it will be operational by the end of this year. It would seem from an initial review however that amendments will be needed if Ireland is serious about adopting a modern personal bankruptcy regime.
Great news for Ryanair as more people go to UK. Banks got their way which shows Lobbying pays. Am very worried about Credit Unions as most of their Debt is unsecured they will fare very badly in the under 20k part of it
They are scared to death of the property provisions of the Constitution. And have to dance on the head of a pin because of it.
But all this rubbish is the result of a decision of the Supreme Court(Constitutional Court) in the early period to presume constitutionality to all that went before the1937 Document of Establishment. Which in effect made it null since it continued to view the citizen as subject. Anyhow, today we’ve the insane situation where the drafting office has to jump through linguistic hoops to make a bill vaguely workable with common law usage and the provisions that the SC has made ruling.
New Beginnings on Drive Time last night were claiming that anyone who wanted to get out of their mortgage could just post back the keys to their house and their debt would automatically switch from secured to unsecured. Wishful thinking or a grain of truth?
Heard that also. Very surprised if true as it would blow a hole in the proposed Personal Insolvency Arrangement.
Vince – could you explain what you mean. I am very interested in what you have to say but do know the property provisions of the Consitition. It is really important that there is proper informed debate as I believe the mortgage and personal problem is the biggest issue facing Ireland. How it is handled now will impact on society for generations.
interesting articles in the sindo…
http://www.independent.ie/business/irish/banks-win-a-walkover-in-battle-of-personal-insolvency-3154520.html
Personal Insolvency Arrangements (PIA).
The general gist of the legislation is that the debtor appoints a Personal Insolvency Practitioner(PIP) who notifies the Insolvency Service(IS) who apply for a protective certificate(PC). If the Insolvency Service satisfies it-self that everything is in order the application is referred to court for the issue of a PC (70 days duration, 40 days extra possible, akin to examinership). The PIP then informs the Creditors. The Creditor can appeal the Protective Certificate within 14 days.
The PIP duties include for the calling of a creditors meeting. IF a debt is secured the creditor can simple state that he wishes to retain his security, this then stays in effect during and after the PIA. 50% of both secured and unsecured creditors have to vote to approve the plan for it to be approved and 65% in total. If the PIA done by the PIP is accepted all parties are bound by it for 6 years.
An arbitrary example will assist.
Take a €500K secured mortgage debt on a PPR, €10k unsecured credit card debt, and €25K unsecured car loan. The 3 debts may be with the one financial entity or 3 separate entities.
The saleable value of the house if €250K. The debtor is unemployed receiving €188/week, has dependants (wife and kids) and is insolvent.
The PIP applies for a PIA and the IS applies for a PC. The Creditors are then informed.
Options for the Secured Creditor. €500k mortgage is secured, €250k is recoverable through sale. Debtor can’t be forced to sell his PPR in a PIA. By hanging onto its security it gives the Debtor a home for 6 years but the PIA may include for little or no monthly repayments. The house might be worth more in 6 years’ time but you could do with the cash today.
Options for the Unsecured Creditor. You’re going to be stiffed; your only bargaining chip is that 50% of you (by value) must approve the plan. The CC Co. has no say as his value is less than 50%, the unsecured car loan can scupper the PIA if there is nothing on the table for him. He can scupper the PIA simply by not voting(105-1&4). The Debtor has nothing to give the unsecured creditor; what likely-hood is there of a secured creditor giving away a piece of his pie to a rival (which may even be different Dept’s of the same bank) unsecured creditor when he can get it all simply by enforcing his security, the secured creditor is probably just as happy whether the unsecured creditor kills the PIA or not.
Options for the Debtor. You have little or nothing to give. The secured creditor will maintain his security (119-3) regardless. The unsecured creditor is largely irrelevant, outside upsetting the PIA applecart. You agree to sell your PPR and the outstanding balance gets written down as unsecured debt over 6 years, i.e. you get out at ZERO(97-5). Alternatively you opt for bankruptcy and get out at ZERO after 3 years, you have to go through the PIA charade in order to get there and the PIP will not get paid as a result of Bankruptcy. If this is your only option why go through 3 years when it can be done in 1 year in the UK once your Centre of Main Interest (COMI) is established, you have a better chance of getting a job there as well. You come out at ZERO in 12 months and probably working. The ministers press statement says that the 3 years ‘moves Ireland to the European norm’ – agreed, if you exclude our nearest neighbour.
If for whatever reason you can’t pay the small €X you are supposed to pay under the PIA, the PIA is terminated and you go back to where you were (118-1). If you inherit or win the lotto within the 6 years of a PIA 50% of your windfall must go to pay the debt, up to the value of the debt of course (114-3b).
I don’t understand the logic in giving the unsecured creditor so much say in the PIA. For example in a DSA, Section 67(9) states that if no creditor votes the proposal is passed but in a PIA Section 105 (1 & 4) says that if the unsecured creditor does not vote the proposal has failed.
The Secured & Un-Secured Creditor can derail a PIA by not voting (after significant effort, LRC- Keane-16 months in Government), that’s a lot of power vested in institutions by simply doing nothing). The Secured Creditor has Veto over his security regardless. Why jump through hoops, incurring expense along the way, just to maintain the Status Quo regarding secured creditors, ‘proportionate and balanced’? the Ministers press statement says, “The provisions relating to a PIA are specifically designed to facilitate a debtors continued ownership and occupation of his principal private residence unless the debtor does not wish to do so.” I agree, but by staying in his PPR he doesn’t improve his lot. If that’s the aim it’s a wonderfully crafted piece, to stay the same the secured creditor has to do nothing. The PIA option is a waste of time for an insolvent debtor attempting to address his situation regarding secured debt, other than ‘yes we can’ kick the Can down the road for 6 years and hoping in the meantime. There are a few quotes out there about finance/economics and hope.
Give it teeth by reducing the 3 year bankruptcy option to 1 with no BPO… likely? At the very least let the secured creditor loose some skin (50%) in a PIA, the Government has been banging onto Europe for some time about secured/unsecured bank bond debt. Otherwise it will become an exercise in exporting our problems, we’re past master at that.
Parts of the act referred to in the above post.
Debt Settlement Arrangement(DSA).
67 (8) A proposal for a Debt Settlement Arrangement shall be considered as having been approved by a creditors’ meeting held under this Chapter where creditors, representing not less than 65 per cent in value of the creditors present and voting, have voted in favour of the proposal.
(9) Where no creditor votes, the proposed Debt Settlement Arrangement shall be deemed to have been approved under this section.
Personal Insolvency Arrangements(PIA).
94 (2) The mandatory requirements referred to in subsection (1) are—
(f) a Personal Insolvency 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;
(j) a Personal Insolvency Arrangement shall not require that the debtor dispose of his or her interest in the debtor’s principal private residence or to cease to occupy such residence unless the provisions of section 99(3) apply;
(m) subject to sections 97 to 100, a Personal Insolvency Arrangement shall make provision for the manner in
which security held by a secured creditor is to be treated;
97 (5) Where a Personal Insolvency Arrangement provides for the sale of the property which is the subject of the security for a secured debt, and the realised value of that property is less than the amount due in respect of the secured debt, the balance due to the secured creditor shall abate in equal proportion to the unsecured debts covered by the Personal Insolvency Arrangement and shall be discharged with them on completion of the obligations specified in the Personal Insolvency Arrangement.
98.—(1) A Personal Insolvency Arrangement which includes terms providing for the sale or other disposal of the property the subject of the security shall, unless the relevant secured creditor agrees otherwise, include a term providing that the amount to be paid to the secured creditor shall amount at least to—
(a) the value of the security; or
(b) the amount of the debt (including principal, interest and arrears) secured by the security as of the date of the issue of the protective certificate,
whichever is the lesser.
99.—(1) In formulating a proposal for a Personal Insolvency Arrangement a personal insolvency practitioner shall, insofar as reasonably practicable, and having regard to the matters referred to in subsection (2), formulate the proposal on terms that will not require the debtor to dispose of an interest in or to cease to occupy his or her principal private residence and the personal insolvency practitioner shall consider any appropriate alternatives to such vacation.
(4) A Personal Insolvency Arrangement shall not contain terms providing for a disposal of the debtor’s interest in the principal private residence unless—
(a) the debtor has obtained independent legal advice in relation to such disposal or, having been advised by the personal insolvency practitioner to obtain such legal advice, has declined to do so, and
(b) to the extent that the provisions of the Family Home Protection Act 1976 or the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 apply to the property, that all relevant provisions of those Acts are complied with.
105.—(1) Subject to subsections (2) and (3) a proposed Personal 10 Insolvency Arrangement shall be Considered as having been approved by a creditors’ meeting held under this Chapter where—
(a) a majority of creditors representing not less than 65 per cent in value of the total of the debtor’s debts due to
the creditors participating in the meeting and voting have voted in favour of the proposal,
(b) creditors representing more than 50 per cent of the value of the secured debts due to creditors who are—
(i) entitled to vote, and
(ii) have voted, at the meeting as secured creditors have voted in favour of the proposal, and
(c) creditors representing more than 50 per cent by value of the creditors who—
(i) are entitled to vote, and
(ii) have voted, at the meeting as unsecured creditors have voted in favour of the proposal.
(4) Where on the taking of a vote at a creditors’ meeting held for the purpose of considering a proposal for a Personal Insolvency Arrangement the proposal is not approved in accordance with subsection (1), the Personal Insolvency Arrangement procedure shall be deemed to have come to an end, and the protective certificate issued
under section 90 shall cease to have effect.
111 (8) In reckoning any period of time for the purpose of any applicable limitation period in relation to any proceedings or process to which this section applies (including any limitation period under the
Statute of Limitations 1957), the period in which the Personal Insolvency Arrangement is in effect shall be disregarded.
114 (3) A debtor shall be considered to be acting reasonably where the debtor refuses to consent to a variation of a Personal Insolvency Arrangement where that variation would require the debtor—
(a) to make additional payments in excess of 50 per cent of the increase in his or her income available to him or her after the deduction of income tax, social insurance contributions and other levies and charges on income, and
(b) to make a payment amounting to more than 50 per cent of the value of any property acquired by the debtor after the coming into effect of the Personal Insolvency Arrangement unless receipt of that property had been
anticipated by the terms of that arrangement.
118.—(1) Subject to subsection (2), where a Personal Insolvency Arrangement has been deemed to come to an end, has failed or has terminated under this Chapter, the debtor shall thereupon be liable in full for all debts covered by the Personal Insolvency Arrangement (including any arrears, charges and interest that have accrued during the continuance of the Personal Insolvency Arrangement but excluding any amounts paid in respect of those debts during the continuance of the Personal Insolvency Arrangement)
119.—(1) Upon the expiration of the Personal Insolvency Arrangement, and where the debtor has complied with his or her obligations under the Personal Insolvency Arrangement, the personal insolvency practitioner shall notify the debtor, creditors and the Insolvency Service.
(3) Where the debtor has complied with his or her obligations under the Personal Insolvency Arrangement, the debtor shall not stand discharged from the secured debts except to the extent specified in the Personal Insolvency Arrangement.
http://www.independent.ie/business/irish/british-bankruptcy-specialists-see-irish-clients-treble-despite-new-law-3165001.html
http://www.irishtimes.com/newspaper/ireland/2012/0630/1224319039631.html
http://www.irishtimes.com/newspaper/ireland/2012/0706/1224319508184.html
http://www.irishexaminer.com/ireland/aib-will-not-offer-writedown-on-mortgage-debt-says-internal-memo-199723.html
Issues list…
Activity prior to DRN/DSA/PIA add 6 months to the process.
A Debtor/PIP required the ability to ‘see into the future’ from a macro/micro economic perspective, a pointless exercise for the debtor but ensures 20/20 hindsight claw-back for the creditor.
Veto of Secured and unSecured creditors in a PIA, unworkable.
Clock re-set to Zero and Debtor return to square 1 if something goes awry, any large unexpected expense when you only have the ability to budget weekly will ensure this happens i.e. illness.
8 year Bankruptcy.
Now that it’s finally published the option seems to be ‘sit on your arse for 6/8 years’ here or for 1 year in Northern Ire/UK. Not exactly Hobsons choice.
Moodys take…
http://mobile.usablenet.com/mt/www.moodys.com/research/Moodys-says-new-Irish-personal-insolvency-legislation-has-mixed-credit–PR_250441
What about the tax man or revenue is it still 3years if you owe him money
@Stv… In a word ‘NO’, Tax is excluded – it is still owed, unless you can get him to write it off, PIA Section 94,2,d. (DRN 22.1, DSA 59.2.c)
94 2 (d) a Personal Insolvency Arrangement shall not release the debtor from any of the following debts unless the proposed Personal Insolvency Arrangement explicitly provides for the compromise of that debt or liability and the relevant creditor for any of the following debts or liabilities has agreed in writing to accept the compromise contained in the Personal Insolvency Arrangement (insofar as it applies to that creditor’s debt)—
(i) any liability arising out of a domestic support order,
(ii) any liability arising out of any tax, duty, levy or other charge owed or payable to the State,
(iii) any amount payable by the debtor under the Local Government (Charges) Act 2009,
35 (iv) any amount payable by the debtor under the Local Government (Household Charge) Act 2011,
(v) rates due to the local authority (within the meaning of the Local Government Act 2001),
(vi) any debt or liability in respect of moneys advanced to the debtor by the Health Service Executive under the Nursing Homes Support Scheme Act 2009,
(vii) any debt due by the debtor to any owners’ management company in respect of annual service charges under section 18 of the Multi-Unit Developments Act 2011 or contributions due under section 19 of
that Act,
(viii) any liability arising out of damages awarded by a court (or another competent authority) in respect of personal injuries or wrongful death arising from the 50 tort of the debtor,
(ix) any debt or liability arising from a loan (or forbearance of a loan) obtained through fraud, misappropriation, embezzlement or fraudulent breach of
trust;
Stephen Donnellys take… essentially about admin, the 10 year review, definition of minimum living standard and regulation of PIP’s.
http://www.independent.ie/opinion/analysis/stephen-donnelly-insolvency-bill-has-ring-to-it-but-needs-tweaking-3168387.html
Dail debate…
http://www.kildarestreet.com/debates/?id=2012-07-12.146.0
A few sentences stuck out, this in particular… “My fear now is that false hopes have been created because while this Bill is a measure of progress, it does not go far enough to address the social and economic crisis that is mortgage indebtedness in this country today.”
additional Dail debates… (all second stage).
http://www.kildarestreet.com/debates/?id=2012-07-13.2.0&s=personal+insolvency+bill#g12.0
http://www.kildarestreet.com/debates/?id=2012-07-18.226.0
M,DoJED accuses S.Ross of “Populist Poppycock”
http://www.kildarestreet.com/debates/?id=2012-07-18.369.0
L.Flanagan mentions this particular post.
http://www.kildarestreet.com/debates/?id=2012-07-18.443.0
€200,000.00 ring!
Alan Shatter (Minister, Department of Justice, Equality and Defence; Dublin South, Fine Gael) “Most of us recognise it is important that we have a proper, functioning banking system. Deputy Ross’s contribution could be summed up as suggesting banks should lend money to individuals, that the individuals to whom money is lent – regardless of circumstances – should never have an obligation to repay it and that the taxpayers should carry the losses incurred within the banking system.”
depressingly misses the point as to the reality of indebtedness in Ireland today.
apparently there was a bit of a Kerfuffle in the corridors after the bill was referred to committee.
Cantillion reckons this legislation will help S. Fitzpatrick…
http://www.irishtimes.com/newspaper/finance/2012/0712/1224319860661.html
Nope…
143.(2) Subject to section 85A, a bankruptcy subsisting on the coming into operation of section 143 of the Personal Insolvency Act 2012 where the order of adjudication was made more than 3 years prior to the coming into operation of that section, shall stand discharged 6 months after that day unless the bankruptcy has otherwise been discharged or annulled.
which raises an interesting point, it’s not just your indebtedness/bankruptcy but the calender timing of it that incurs 3 years or 12 Bankruptcy period. On the face of it a bizarre bias that shouldn’t stand up to an ‘equality’ legal test.
@stv my answer was not correct.
The insolvency arrangements specifically exclude Tax as a ‘write-off’ possibility., i.e. Tax is owed at the beginning, duration & end of any of the proposed insolvency arrangements.
If the insolvency arrangements are not suitable/possible and the 3 year bankruptcy is entered into, bankruptcy does include Tax as a write-off, i.e. it is not owed at the end.
Under bankruptcy a creditor can make a Bankruptcy Payment Order (BPO) application which adds a potential 5 years where money can be/has to be re-paid (section 85D) , if revenue is a creditor this option is open to them.
Apologies for any confusion.