This site uses cookies to improve your experience and to provide services and advertising. By continuing to browse, you agree to the use of cookies described in our Cookies Policy. You may change your settings at any time but this may impact on the functionality of the site. To learn more see our Cookies Policy.
OK
Dublin: 7 °C Friday 6 December, 2019
Advertisement

Column: The UK will continue to be a far friendlier place for those drowning in debt

The new Personal Insolvency Act may work for some but it’s deficient for a sizeable portion of distressed borrowers, writes Ronan Coburn.

Ronan Coburn

The number of Irish residents who relocated to England in 2012 for the purpose of declaring themselves bankrupt was nearly double than the year before. Here Ronan Coburn discusses whether Ireland’s personal insolvency goes far enough to help those in distress.

THE LEGISLATORS WHO drafted the Personal Insolvency Act 2012, which was enacted into law on 26th December 2012, are already working on Amendments to this Act’s provisions.

The Act introduces: the reform of the Bankruptcy Act 1988; three new forms of non-judicial Debt Settlement Arrangements; the setting up of the Insolvency Service of Ireland; the training and appointment of Personal Insolvency Practitioners (PIPS) and the training and appointment of eight new Circuit Court Judges (each of which will earn an annual salary of in excess of €140,000) who will oversee these ‘non-judicial’ remedies.

One of the objectives of the Act is to facilitate the orderly settlement of personal debts and affording debtors who hold non-performing secured loans, an opportunity to re-enter economic activity in Ireland. Another objective is to try to compel the banks to constructively engage with stressed borrowers with a view to formulating and agreeing five-to-six year plans with borrowers .

Debt write-off

Where such borrowers dedicate themselves in good faith to the implementation (with annual reviews of these arrangements with their PIPs and banks), in return – they can expect that there will be pre-agreed debt write-offs at the end of the six or seven year arrangement timescale. Additionally, the borrower – in certain circumstances, may not have to vacate his/her Principal Private Residence – will be free from much of the burden of these secured debts.

Another option (for those with substantial unsecured loans of between €20k and €3m) is to seek a Debt Settlement Arrangement (DSA) through the formulation of a plan via a PIP, who will interface with their secured and unsecured creditors, to seek  the consent of 65 per cent of them to have the plan approved and subsequently administered over a period of five to six years. If Personal Insolvency Arrangements (PIAs) and DSAs are successfully commenced and adhered to by the debtors, they enter a type of ‘protective bubble’ whereby they cannot be pursued or litigated against by their creditors for the duration of the respective arrangement.

DSAs and PIAs are arrangements whereby newly trained Independent Insolvency Practitioners are retained by borrowers (who can afford to retain them) in order to formulated a plan structured to achieve creditors’ agreement to a 5-year plan, whereby certain payments are adhered to in a timely basis. At the end of this five year timescale, if the arrangement conditions have been met, then the creditors will write-off a large portion of the residual debt. A potential limitation of this overall scheme that the banks will continue to have a veto in agreeing to have these arrangements set in place for debtors at first instance, so their success or failure will be ultimately determined by the banks’ pragmatism in this regard.

Your everyday cost of living and expenses

In the case of a family of two adults and two children, the following may apply:

  • Reasonable costs guidelines arrived at through the Vincentian Partnership for Social Justice (and the Household Budget Survey), whereby wide survey information on prices for everyday living costs ( showing itemised levels of cost allowances under which your assisting Personal Insolvency Practitioner cannot go), including  housing costs  and including childcare might typically be €3,500 per month net
  • This equates to approximately €55,000 gross annual income, for a couple under PAYE.
  • In other words, a substantial portion of highly pressurised Borrowers who have been serious negative equity, [over the previous 4 to 5 years] would need to be earning approximately €55,000 gross per annum and be in a position to  afford to fund a Personal Insolvency Arrangement.
  • In many cases they would have to survive without, private health  cover,  private school fees, SKY/ UPC add-on packages,  annual holidays and a second car. They will be expected to adhere to a personalised austerity regime overseen by their PIP and their secured creditors (mostly the lending banks) for five or six years before they will have earned the right to a loan write-off.

Heavy borrowers on incomes below this €55,000 threshold will effectively be unable to satisfy the PIA initial criteria and so will be excluded from getting into this ‘protective bubble’ over five years and so they won’t have the prospect of reaching the end of the target timescale and achieving the ‘prize’ of a large portion of their loan(s) being written-off.

Bankruptcy

If the arrangement involves a Debtor’s Principal Private Residence [PPR], then they must have already gone through the Banks’ Mortgage Arrears Resolution Process [MARP], prior to retaining a PIP to formulate an Arrangement whereby, a Prescribed Financial Statement is constructed and utilised to construct a PIA. Inter alia, PIAs and DSAs are subject to the achievement of 65 per cent of the secured creditors (broadly – the banks). The borrowers must go through this PIP-assisted process prior to petitioning for bankruptcy. A breach of the conditions of these arrangements constitutes an act of bankruptcy.

The true nature of bankruptcy is that it is the ultimate debt forgiveness mechanism. Petitioning for bankruptcy in the UK still has a strong edge over Irish Bankruptcy. This is because the Personal Insolvency Act 2012 has allowed the banks to maintain a potential hold over the bankrupt (even after the newly-reduced period of automatic discharge of three years have run its course).

In certain circumstances Irish Banks can have a Payment Order served on the ‘newly-discharged bankrupt’  seeking a  claim over any value created by the borrower for an extended period beyond the new statutory three year timescale for automatic discharge from bankruptcy.

Taking stock of what would be best

As soon as stressed Irish  borrowers (who are outside of the qualifying criteria for a PIA) take stock of their position, their advisors are likely to emphasise that the UK, will continue to be a far friendlier place for those drowning in debt. The reduction in 2004 of the UK bankruptcy period from three years to one year, made this jurisdiction a very attractive proposition for eligible debtors from Germany and Ireland.

They may be advised to set up their COMI [Centre of main Interests] in Northern Ireland (or the UK)  for six months with the intention of petitioning  for bankruptcy in the UK and achieving entire debt write-offs in tandem with the status as a discharged bankrupt after just one year – critically, with no recourse being afforded to the secured creditors – the banks.

Ronan Coburn is a Dublin-based independent banking consultant, forensic accountant and expert witness. He is also a member of the Institute of Bankers in Ireland. Further information at thebottomline.ie. To read more from Ronan for TheJournal.ie click here.

Column: The insolvency process should be a competent public system that ensures everyone has access>

Struggling borrowers may have to move house, sell car and change creche to enter new insolvency process>

PIC: How much a single person can spend under the new insolvency rules>

  • Share on Facebook
  • Email this article
  •  

About the author:

Ronan Coburn

Read next:

COMMENTS (9)