Under the Personal Insolvency Act, 2012 there are a number of options for debtors which will allow individuals to deal with debt where the debtor is insolvent. One of these solutions is known as the Personal Insolvency Arrangement or PIA. A PIA is a mechanism whereby an agreement in reached between a debtor and creditors to settle or restructure debts over a period of time (up to six years) where the debtor is insolvent i.e. unable to pay their debts as they fall due. In the case of a PIA a Personal Insolvency Practitioner (PIP) will be required. Their function will be firstly to compile all the necessary financial information of the debtor and apply to the Court for a ‘Protective Certificate’. This Certificate will prevent creditors from taking steps to recover their debt for a period of 70 days to allow the debtor with the help of a PIP prepare a financial statement and PIA for consideration and voting by creditors. A meeting of creditors must be held and a qualified majority of creditors must approve the proposal for a PIA.
A PIA can include both secured (e.g. mortgage) and unsecured debt (e.g. car loans and credit card debt). In the case of unsecured debt, the debtor will be released from any outstanding debt at the end of the PIA. Secured debt may continue to remain payable at the end of the period or by agreement with the creditor(s) the debtor may be released from the debt. A PIA must be processed by the Insolvency Service of Ireland and approved by the Court.
A typical situation which may be suitable for consideration under the PIA process is as follows:
Mary and Tom are married with three children, aged 3, 8 and 10. Mary is a part-time office worker earning €1,300 net per month. Tom is a carpenter earning €2,800 net per month. They have one car valued at €2,400 and Tom’s van for work valued at €6,000. They purchased their principal private residence in 2007 and there is €285,000 currently outstanding on their 25 year tracker mortgage. The current value of their property is €190,000. They also have unsecured debt of €45,000 being a credit union loan of €25,000 and credit card debt of €15,000 together with an overdraft of €5,000. Their monthly mortgage repayments are €1,950 and other loans €890. Their day-to- day living expenses including food, clothing, utility bills, fuel, household maintenance and childcare costs amount to €2,200 per month. They have a deficit of €940 per month. They have co-operated with their Bank over the last eight months but have not been able to reach a sustainable agreement.
Tom and Mary qualify for the arrangements provided under the PIA process and should seek the assistance of a PIP to help them prepare a proposal to restructure and reduce their liabilities to a more practical level.