Bank­ruptcy your last re­sort when you run into sol­vency prob­lems

Bray People - - BUILD & RENOVATION -

Q. I owe a lot of money to the banks on prop­erty in­vest­ments that are in trou­ble. I can­not meet the re­pay­ments on th­ese loans and I am con­sid­er­ing the new in­sol­vency/bank­ruptcy law as a way of sort­ing out my sit­u­a­tion. Can you please ex­plain my op­tions?

A. In late De­cem­ber 2012, the Per­sonal In­sol­vency Bill 2012 fi­nally com­pleted its pas­sage through the Dáil and the Seanad and be­came law. The idea is to have a way for peo­ple in fi­nan­cial dif­fi­culty to re­solve their debt in a straight­for­ward man­ner.

By pro­vid­ing clear and trans­par­ent ways of deal­ing with debt it re­duces the stress for in­di­vid­u­als, while giv­ing cred­i­tors i.e banks a clear path to fol­low. While de­tailed, the leg­is­la­tion can be boiled down to rel­a­tively sim­ple pro­cesses which should en­able those in dif­fi­culty and their cred­i­tors to un­der­stand and al­low for debt ar­range­ments to be pre­pared and pro­cessed quickly and cost ef­fec­tively. The bank­ruptcy leg­is­la­tion has been amended and now a per­son can exit bank­ruptcy in Ire­land af­ter 3 years com­pared to 12 years pre­vi­ously.

In ad­di­tion to bank­ruptcy there are now 3 other new forms of per­sonal in­sol­vency ar­range­ments that a per­son in fi­nan­cial dif­fi­culty may con­sider.

1) Debt Re­lief No­tice (DRN) -Suit­able for peo­ple with debt of €20,000 or less.

2) Debt Set­tle­ment Ar­range­ment (DSA) - This ar­range­ment is for un­se­cured debts of any value. You will need to work with a Li­cenced In­sol­vency Prac­ti­tioner (PIP) who for­mu­lates the pro­posal. The ar­range­ment lasts for a max­i­mum of 5 years but may in­crease to 6 years. Cred­i­tors meet and vote to ap­prove scheme (65% over­all ap­proval needed)

3) Per­sonal In­sol­vency Ar­range­ment (PIA) - This op­tion is for deal­ing with se­cured debt up to €3mil­lion. You will need to work with a Li­cenced In­sol­vency Prac­ti­tioner (PIP) who for­mu­lates the pro­posal. Cred­i­tors meet and vote to ap­prove scheme (65% over­all ap­proval needed sub­ject to 50% se­cured and 50% un­se­cured ap­prov­ing). PIP to pre­pare scheme with a view to keep­ing debtor in their fam­ily home. There is a Max 6 year pe­riod but op­tion to in­crease to 7 (no min­i­mum pe­riod).

In the cur­rent eco­nomic en­vi­ron­ment, per­sonal in­sol­vency has be­come a lot more preva­lent due to the sub­stan­tial de­cline in value of nearly ev­ery as­set class in­clud­ing prop­erty, shares and other in­vest­ments. The con­tin­ued un­cer­tainty in the econ­omy has also knocked peo­ples’ abil­ity to re­pay gen­er­ous loans taken out in the boom years.

The com­bi­na­tion of fall­ing pay, and in some cases re­dun­dancy or ill­ness, cou­pled with the de­cline of as­set value has re­sulted in wide­spread neg­a­tive eq­uity mean­ing peo­ple do not even have the op­tion of sell­ing to clear their debts. While you do not state what you owe, it might be ad­vis­able ex­plor­ing the third op­tion, PIA, to see if you and your cred­i­tors can agree terms.

Bank­ruptcy, while now con­sid­er­ably more le­nient at three years, would still be the last choice sce­nario if pos­si­ble. Ex­per­tise?If you’re an in­di­vid­ual fac­ing fi­nan­cial dif­fi­cul­ties make sure to get the proper ad­vice as early as pos­si­ble. It is worth remembering that this in­sol­vency law is de­signed to pro­tect your fam­ily home, so don’t suf­fer un­nec­es­sar­ily if you are in fi­nan­cial dif­fi­culty. Make sure to read or fol­low our ar­ti­cle on in­sol­vency next week.

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