The Personal Insolvency Act 2012 which was passed into law in Ireland at the end of 2012 will, when implemented, offer three completely new debt settlement arrangements to insolvent debtors. The measures are the Debt Relief Notice, the Debt Settlement Arrangement and the Personal Insolvency Arrangement.
While each of these measures offers financial solutions for insolvent debtors, they are very different from each other, particularly in relation to the levels of indebtedness of debtors as well as to their income and to the amount of assets, if any, that debtors have. In fact debt, income and assets are three of the most important criteria which determine which, if any, of the new measures may be availed of by any particular insolvent debtor, subject in the case of a Debt Settlement Arrangement or a Personal Insolvency Arrangement to the agreement of creditors.
The new law introduces some concepts which are new to insolvency law in Ireland and some new terminology is introduced particularly in relation to how debt may be treated. Certain debts are for example described as being ‘excluded’; certain other debts are described as being ‘excludable’ and certain debts are described as being ‘permitted’. Let’s look at each of these terms and see what it means.
Excluded debt means:
- any liability of the debtor arising out of a domestic support order such as child maintenance
- any liability of the debtor arising out of damages awarded by a court or another competent authority in respect of personal injuries or wrongful death arising from the tort of the debtor
- any debt or liability of the debtor arising from a loan or forbearance of a loan obtained through fraud, misappropriation, embezzlement or fraudulent breach of trust
- any debt or liability of the debtor arising by virtue of a court order, made under the Proceeds of Crime Acts 1996 and 2005 or by virtue of a fine ordered to be paid by a court in respect of a criminal offence
Excludable debt means:
- any liability of the debtor arising out of any tax, duty, levy or other charge of a similar nature owed or payable to the state
- amount payable by the debtor under the Local Government (Charges) Act 2009
- amount payable by the debtor under the Local Government (Household Charge) Act 2011
- any liability of the debtor arising out of any rates due to the local authority (within the meaning of the Local Government Act 2001)
- any debt or liability of the debtor in respect of moneys advanced to the debtor by the Health Service Executive under the Nursing Homes Support Scheme Act 2009
- 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
- any debt or liability of the debtor arising under the Social welfare Consolidation Act 2005
Excluded debts may not form part of any of the three new debt settlement arrangements i.e. a Debt Relief Notice, a Debt Settlement Arrangement or a Personal Insolvency Arrangement. In other words, allowance must be made for paying these debts off in full and such payments must be accounted for before the debtor’s net disposable income is calculated.
Excludable debts on the other hand may however form part of the arrangement being proposed but only on certain conditions. The principal requirement is that the relevant creditor consents to the excludable debt forming part of the proposed arrangement, be it a Debt Relief Notice, a Debt Settlement Arrangement or a Personal Insolvency Arrangement. If the creditor so consents or is deemed to have so consented, the excludable debt becomes a ‘permitted debt’ and may become a ‘specified debt’ for the purposes of the insolvency arrangement being proposed. The required creditor consent for inclusion of the debt in the arrangement is sought in writing by the Approved Intermediary (AI) in the case of a Debt Relief Notice or by the Personal Insolvency Practitioner (PIP) in the case of a Debt Settlement Arrangement or a Personal Insolvency Arrangement. Certain information must be provided to the relevant creditors who then have a limited amount of time to respond, either consenting to the inclusion of the debt or withholding that consent. Where the relevant creditor fails to respond they are deemed to have consented to the inclusion of the debt in the relevant arrangement.
Apart from ‘excludable debts’, which may, as detailed above, become ‘permitted debts’, the other ‘normal’ or ‘qualifying’ debts, which will usually form part of an arrangement such as a Debt Relief Notice, a Debt Settlement Arrangement or a Personal Insolvency Arrangement are:
- credit card debt
- an overdraft or an unsecured loan from a bank or other entity regulated by the Central Bank of Ireland which carries out business in the State and is regulated by the Central Bank of Ireland
- debt for payment of one or more than one bill in respect of rent, utilities or telephone
- liquidated debts incurred by the debtor as surety for another person, such as a guarantee given by the debtor that has been called up that any amount guaranteed is due and payable by the debtor
The Personal Insolvency Arrangement is specifically designed to deal with secured debt as well as the types of qualifying and permitted debts described above.
Written by Paddy Byrne
05 / 03 / 2013