The Personal Insolvency Act 2012 (in Part 3) in 6 Chapters provides for the following;
- three new non-judicial debt resolution processes,
- the appointment and guidance of Personal Insolvency Practitioners, offences, and miscellaneous provisions.
The new mechanisms of debt management provide various solutions for people in different situations.
Debt Relief Notices (Part 3: Chapter 1)
Debt Relief Notices (DRNs) allow for the write-off of debt up to €20,000 for people who are insolvent and have no prospect of repaying their debt within the next 5 years.
The objective is to resolve unmanageable debt problems in an efficient and non-judicial method.
A Debt Settlement Arrangement is for those who can repay their debt for the agreed settlement of unsecured debt with no limit involved normally over the course of 5 years. Applications for a DRN must be submitted through an intermediary authorised body such as The Money Advice and Budgeting Service (MABS) on behalf of the debtor.
The approved intermediary body should:
- Inform the debtor of their options and the necessary requirements,
- Guide them in the preparation of their financial statements and the necessary statutory declaration and documents, and
- If the qualifying terms and conditions are met, transfer the debtor’s application to the Insolvency Service to have a DRN approved.
- Debtors must have qualifying debts of €20,000 or less;
- Debtors will not be eligible if 25% or more of the qualifying debt was incurred in the last 6 months preceding the application;
- Debts qualifying for inclusion in a DRN are likely to be unsecured debts, for example credit card, personal loan or catalogue payments, etc;
- After provision for “reasonable” living expenses and payments debtors will have a monthly disposable income of €60 or less in respect of excluded debts (if applicable);
- Debtors will hold assets, separately or jointly to the value of €400 or less. Essential household appliances, tools etc. necessary for business or employment and one motor vehicle up to the value of €1,200 are exempted from the asset measurement;
- Debtors must operate in good faith and co-operate fully;
- Debts excluded from Debt Relief Notice include: taxes, court fines, family maintenance payments and service charge arrears.
The Insolvency Service process
On receipt of a DRN application the Insolvency Service will liaise with the Department of Social Protection and the Revenue Commissioners and make the necessary enquiries to confirm the information provided in the application.
If the Insolvency Service is satisfied that the information and application made is accurate and eligible then they will issue a certificate to that effect and furnish the supporting documentation to the court.
If the court accepts the application as a DRN then they will inform the Insolvency Service who in turn will notify the debtor. It will then be registered as a DRN in the register of Debt Release Notices and the relevant parties will be updated on progress.
Under the status of DRN the debtor is subject to a three year period of supervision and during that period creditors may not initiate or proceed with legal action to seek to recover payment for a debt, recover goods or contact the debtor.
The DRN will last three years from the date of issue. At that time (and subject to no other action) the DRN terminates and the qualifying debts are discharged and the debtor will then be removed from the Register of Debt Relief Notices.
The debtor must inform the intermediary body and the Insolvency Services if there is a change in financial circumstances.
Rules and Strictures
Only one DRN is permitted per lifetime and not within 5 years completion of a Debt Settlement Arrangement or Personal Insolvency Arrangement. The debtor is restricted from applying for credit over €650 during the DRN supervision period without updating the person of his status.
There is provision available for the debtor to repay a part of the debt in circumstances where their financial status improves. These financial circumstances include receipt of gifts or windfalls over €500 or where the debtor’s monthly income has increased by over €250 per month.
The debtor will be deemed to have satisfied the debts in full if they make a 50% payment of the original debt and the DRN will cease to have effect and the debtor will be removed from the Debt Register. The debtor should transfer funds to the Insolvency Service to be paid to the relevant creditors on a pari pasu basis.