How Personal Insolvency Arrangements (PIA) work

A PERSONAL Insolvency Arrangement (PIA) is a debt resolution mechanism introduced in 2012 for people who cannot afford to pay their personal debts.

The PIA applies to the agreed settlement and/or restructuring of secured debts, as well as unsecured debts over a period of up to six years.

Mr and Mrs Murphy have a property with a mortgage of €500,000. The property is valued at €250,000. The mortgage has been in arrears since 2010. The interest rate is 4.65pc. They have a Credit Union loan and credit card debt. The Murphys have little disposable income and their loan has been sold to a vulture fund.

Mr & Mrs Murphy meet a PIP.

The PIP assesses the household income and expenses (Reasonable Living Expenses).

Mr & Mrs Murphy are insolvent and, even with the best will in the world, can not afford to repay their debts in full.

The PIP assesses what they can sustainably afford.

The PIP, based on the income and expenditure profile of the family, determines they can only afford to repay a mortgage loan of €250,000.

A PIA is proposed and the home mortgage is written down from €500,000 to €250,000.

The mortgage term is extended until age 68 for Mr and Mrs Murphy. A sustainable, affordable mortgage payment going forward is determined.

3.

The interest rate is reduced to 3pc and fixed for the term of the mortgage.

A PIA can last from one day to six years depending on the level of disposable income into the household.

Mr & Mrs Murphy have no disposable income to fund a long-term arrangement.

A relative introduced a lump-sum payment of €5,000 in full and final settlement of the debt.

The PIP proposes a 12-month PIA where the lump sum is paid into the PIA. The ‘negative equity’ (€250,000) and all of the unsecured debt (Credit Union €20,000 and credit card €3,000) is written off under the PIA (in exchange for the €5,000).

The unsecured creditors (€273,000) are paid €5,000 for the debt being written off — that is circa 1.83 cent in the euro in full and final settlement.

This accelerated lump-sum PIA lasts 12 months.

After the PIA, the Murphys have a normal performing mortgage of €250,000 at a fixed interest rate of 3pc until they are aged 68. All of the negative equity and all of their unsecured debt have been written off.

The above example is a fairly straightforward PIA scenario; a farming case tends to be a much more complex situation, but the same legislation can be applied to help farmers dealing with vulture funds and other debts to save the family home and also the family farm.