A Debt Relief Certificate is one of three new measures contained in the first draft of the Personal Insolvency Bill which was published by the Irish Government at the end of January this year. The draft bill is likely to be changed considerably before the final version which is scheduled to be ready before the end of April 2012. For a start, the draft bill contains just the heads of the bill and it is clear that the government has not made up its mind yet on a considerable number of the detailed aspects of the bill. Each of the three new measures being brought forward is non-judicial in nature. It is also planned to establish a new Insolvency Service which will be funded by the state and which will oversee the three new non-judicial measures, making determinations which would otherwise have to be made by the courts. The new Insolvency Service will create and maintain a Personal Insolvency Register to record the details of debtors who enter into any of the three new processes being proposed.
The simplest of the new measures being proposed is called a Debt Relief Certificate or which is remarkably similar to the UK’s Debt Relief Order. The Debt Relief Certificate will be of particular interest to insolvent debtors who have unsecured debts totaling no more than Euro 20,000. Such persons may be eligible for a Debt Relief Certificate provided they have assets of no more than Euro 400 (other than a car which has a maximum value of Euro 1,200) and provided that their monthly disposable income is no more than Euro 60. The government is proposing to appoint what they describe as approved intermediaries to assist qualifying debtors to enter the process. It is unclear at this stage what criteria will have to be met for a person to qualify as an approved intermediary. The fee for the service will be Euro 90 which is payable upfront and if a Debt Relief Certificate is granted to the debtor by the new Insolvency Service, the debtor will have nothing more to pay. Twelve months later, provided the debtor’s financial circumstances have not materially changed, the debtor exits the process and all eligible unsecured debts are written off permanently.
The allowable unsecured debts in a Debt Relief Certificate include overdrafts, unsecured loans, credit card and store card debts, utilities, rent, phone, benefit overpayments, social fund loans and guarantees. The draft legislation is not fully clear at this point in regard to the treatment of debts incurred under a hire purchase agreement or a conditional sale agreement. It does state that where the debtor has a hire purchase agreement or a conditional sale agreement, he or she must return the goods bought with these loans and that they will not be permitted to carry on paying for such goods, once they have been granted a debt relief certificate. This particular clause seems astounding in so far as it seems to require the debtor to break an existing legal contract, notwithstanding the rights of the creditor who provided the finance and ignoring the current status of the hire purchase or conditional sale agreement.
There are certain debts which are excluded and which must be paid by the debtor in full, outside of the Debt Relief Certificate. These include court imposed fines, child support payments, confiscation orders made by a court, spousal payments and periodic payment orders.
The debtor must not have applied for a Debt Relief Certificate in the previous six years and no debtor will be allowed to obtain a Debt Relief Certificate more than twice in a lifetime. There are restrictions as well for debtors who are already involved at a variety of stages in other insolvency processes. Residency in Ireland is also a requirement to obtain a Debt Relief Certificate. For the purposes of a Debt Relief Certificate certain assets are excluded from consideration in calculating the value of the debtor’s assets. These include household equipment (bedding, clothes, furniture), tools and books and other items (used by the debtor in his or her job or business), a car to the value of Euro 1,200 (and to a higher undefined value for people with a physical disability) and crucially payments from pension funds, which are treated as income rather than as assets.
A key requirement in applying for a Debt Relief Certificate is the provision of a Standard Financial Statement, a list of debts and their amounts, the security held in respect of any of those debts, the financial circumstances of the debtor including his or her income and assets. The application is made through the approved intermediary who verifies certain matters in relation to the application and who confirms that the fee of Euro 90 has been received. The intermediary is under a duty to explain certain aspects of the procedure to the debtor.
The Insolvency Service decides whether to grant a Debt Relief Certificate to the debtor or not and may seek further information from the debtor in regard to the application but will usually decide on the basis of the application whether the debtor is insolvent or not and will accept the information provided as being correct, unless it has clear grounds for thinking otherwise. Creditors may object to the Insolvency Service during the one year moratorium period in respect of any aspect of the Debt Relief Certificate once it is granted and the Insolvency Service must consider the merits of each such objection and make a decision which could include revoking or amending the Debt Relief Certificate. Creditors can then appeal any such decision to the court, if they feel that their interests are prejudiced unfairly.
The draft bill also seeks to ensure that no debtor applying for a Debt Relief Certificate has entered into any transactions at undervalue or carried out any preferential transactions in the two years prior to the granting of the Debt Relief Certificate. The debtor is also under an obligation to inform the insolvency service of any increase in his or her income or assets during the twelve months moratorium period of the Debt Relief Certificate and must not take out any further credit or engage in any business without disclosing that he or she is subject to the provisions of a Debt Relief Certificate.
While quite a lot of flesh has yet to be put on the bones of the Debt Relief Certificate solution, it does appear at this preliminary stage that it may be an attractive process for qualifying debtors and even for creditors.
Given that there is likely to be a long legislative process in the Dail before the final Personal Insolvency Bill is enacted into law and given that resources have to be assigned to for example the establishment of the Insolvency Service and that appropriate regulations have to be put in place, it seems unlikely at this stage that the Debt Relief Certificate will be up and running as a personal insolvency solution before the autumn of 2012.
Paddy Byrne 20/02/2012