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Debt in Ireland 2013

It is interesting to look back to 2009 and what we then felt needed to be done then to address the problems of personal insolvency so as ‘to alleviate the suffering of people with personal debt’.

We reported that the Irish Government ‘was under enormous political and financial pressure due to the economic crisis, the bank crisis and soaring unemployment’ and that little had been done to help ordinary people. At that time it seemed that ‘the builders, the banks and the politicians were hogging the limelight each seeking solutions that would enable them to enable them to rise from the ashes of a crumbling uncompetitive economy’.

Euro Debt Ireland

We reported that ‘some observers were then predicting a tsunami of personal debt’ and we remarked on the ‘failure of successive governments to legislate to provide relief in that area’. We contrasted the jurisdictions of the UK and Ireland and described the chasm of differences in terms of possible solutions. We recorded the fact that ‘in the UK the Insolvency Act was enacted in 1986 and gave birth to Individual Voluntary Arrangements, commonly called IVAs’.

An IVA deals with personal debt as distinct from corporate or business debt and is a formal agreement between the debtor and his or her creditors to repay a portion of their debts over a limited period, usually no more than five years, although it could be for a shorter period, and is binding on all parties. At the end of the term, provided the debtor has adhered to the agreed terms, all their debts are discharged. For more information on IVAS see ‘How does an IVA work?’ on our sister website or go to our IVA section on National Debt Relief.

The UK also enacted the Enterprise Act in 2002, further bolstering the insolvency legislation.

We noted that ‘no such solution for personal debt above £15,000 had been enacted by the Irish government in the intervening twenty three years’. We also referred to the fact that ‘the UK had also introduced Debt Relief Orders to cater for people with debts of less than £15,000 and Administration Orders for people with debts of less than £5,000’. We reported that the ‘bankruptcy legislation has also been reformed in the UK, making it a most attractive option for many people in financial difficulty, with discharge within twelve months the norm nowadays’

We also quoted some telling statistics back then in 2009: ‘in the UK in 2008, more than 67,000 people petitioned for bankruptcy. By contrast, only four people opted for bankruptcy in Ireland in 2008 although this is expected to rise sharply in 2009. The cost, delay, complexity and consequences of bankruptcy in Ireland are so severe that it is a most unattractive solution for either debtors or creditors. Of these factors, cost is undoubtedly the greatest barrier.’

Finally in 2009, we strongly advocated that ‘the Irish bankruptcy legislation should be thoroughly overhauled and that alternative additional solutions such as IVAs be enacted in legislation. With the availability of the UK blueprint of its 1986 Insolvency Act together with its successful implementation over the last quarter of a century, it should not be a difficult challenge for Irish legislators to draft and enact proper personal insolvency laws. Apart from the obvious goal of enabling debtors to deal with their personal financial problems in a finite time frame and to the satisfaction of their creditors, it would also enable creditors to crystallize the extent of their personal bad debt impairment, and report this more accurately in their balance sheets. This would enhance confidence in the Irish financial system and provide a regulatory framework for dealing with personal insolvency’.

Let us fast forward then to December 2013. All of our 2009 recommendations have been accepted culminating in the enactment of the Personal Insolvency Act 2012 which was signed into law in December 2012. The saddest part of all of this is that it took over three years to introduce the new laws and it has taken almost a further year to ‘commence’ implementation of the new personal insolvency measures. Unfortunately, the new measures have failed to ‘mirror image’ the successful UK legislation and have imposed very stringent conditions and barriers on the long suffering insolvent Irish debtor, including the imposition of additional costs making the Irish solutions more expensive than their UK equivalents.

The 4 new Irish solutions

Debt Relief Notice

The Debt Relief Notice or DRN is very similar to the UK’s Debt Relief Order or DRO. It applies to insolvent persons with unsecured debts of under €20,000, disposable income of less than €60 per month and assets of no more than €400, with some exceptions. Unfortunately the Irish DRN lasts for three years whereas the UK DRO lasts for just one year.

Debt Settlement Arrangement

The Debt Settlement Arrangement or DSA is very similar to the UK’s Individual Voluntary Arrangement or IVA. It applies to insolvent persons with unsecured debts only but with no upper limit to such debts. It does not deal with secured debts and the normal term of a DSA will be five or six years. Applicants for a DSA must in all cases seek a Protective Certificate or PC from Court prior to proposing a DSA to creditors. (The UK abolished the requirement for an Interim Order – similar to a PC a number of years ago, except in extreme cases where legal action or other enforcement action was already in progress against the debtor).

Personal Insolvency Arrangement

The Personal Insolvency Arrangement or PIA is a new innovative insolvency solution with no equivalent or similar solution in the UK jurisdiction. It applies to insolvent persons with both secured debts (subject to a cap of €3million, unless creditors consent to higher limits), and unlimited levels of unsecured debts. The normal term of a PIA will be six or seven years. Applicants for a PIA must in all cases seek a Protective Certificate or PC from Court prior to proposing a PIA to creditors. (The UK abolished the requirement for an Interim Order – similar to a PC a number of years ago, except in extreme cases where legal action or other enforcement action was already in progress against the debtor).

Bankruptcy

Reform to the bankruptcy laws is the fourth strand of the changes to personal insolvency legislation in Ireland and ‘commencement’ of these reforms has just recently been announced by the Minister for Justice, Equality and Defence, Alan Shatter. The key reforms are: automatic discharge from bankruptcy after three years (down from twelve years but still significantly longer than the UK’s one year); the court may order a bankrupt debtor to continue to make payments to creditors for a further five years after the three years discharge period); bankrupt persons may retain certain personal belongings up to a value of €6,000 (double what they could previously retain);  pre-bankruptcy transactions may be reversed for up to three years, an increase on previous law relating to the look-back period; creditor’s petition for bankruptcy must be based on a minimum debt level of €20,000 (up from €1,900).

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