Debt Settlement Arrangements
The Bill (in Part 4) provides for a system of Debt Settlement Arrangements (DSA) between a debtor and two or more creditors to repay an amount of unsecured (consumer type) debt over a set period. The DSA would assist persons who have an income and assets and debts that exceed the threshold (€20,000) for a Debt Relief Certificate. With the required assistance of a personal insolvency trustee, the debtor may apply to the Insolvency Service for a Protective Certificate in respect of preparation of a DSA. If granted, the Certificate would provide for a standstill period during which creditors may not take action against the debtor. The trustee would then put forward a DSA to creditors for agreement. If approved, the Insolvency Service would provide formal registration of the DSA. At the satisfactory conclusion of the DSA all debts covered by it would be discharged. The Insolvency Service has no role in the negotiation and agreement of a DSA. (Similar systems operate in the UK, Northern Ireland and Australia).
General conditions for application for a DSA
· the debtor must normally be resident in the State or have a close connection.
· only one application for a DSA is permitted in a ten year period.
· a Protective Certificate, if granted, will provide a standstill period of 30 working days to allow for a creditors meeting to consider the DSA.
· a DSA will normally runs for 5 years.
· the DSA requires the approval of 65% in value of qualifying creditors.
· a DSA if approved, it is binding on all creditors.
When a DSA has been agreed with creditors
· the DSA will come into effect on registration by the Insolvency Service.
· the DSA may be varied or terminated.
· there may be an application for adjudication in bankruptcy on ending, termination or failure of the DSA.
· there are grounds for challenge by creditors to a DSA and a role for the courts on application to have a DSA annulled.
From the Department of Justice briefing papers
What is a Debt Settlement Arrangement?
The Debt Settlement Arrangement (DSA) provides for a system of debt settlement betweena debtor and two or more creditors to repay an amount of unsecured consumer type debt only over a set period.
For example: Lets assume that that Mary has a number of unsecured debts such as
credit card, personal loans, overdrafts, retail, store catalogues, etc which amount to over €20,000. She has difficulty in repaying her debts in full, perhaps due to reduced income and pressure to maintain mortgage repayments.
(Similarly with the DRC, debts that do not qualify for inclusion in a DSA include secured credit of any type, fines imposed by a court and family maintenance payments).
Mary can now contact a personal insolvency trustee, who having examined her circumstances and completed a financial statement of affairs may apply to the Insolvency Service for a Protective Certificate in respect of preparation of a DSA. If granted by the Insolvency Service, the Protective Certificate would provide for a standstill period (30 days) during which creditors may not take action against Mary.
The next step is for the personal insolvency trustee to forward a DSA to creditors for their agreement. The proposal would set out the amounts to be repaid by Mary over a five year period and any particular conditions that might attach.
If approved by creditors (by a vote of 65% in value of qualifying creditors), the Insolvency Service would provide formal registration of the DSA.
At the satisfactory conclusion of the DSA after 5 years, all of Mary’s debts covered by it would be discharged in full. Mary could not apply for another DSA within a ten-year period.
The DSA will likely be subject to annual review by the personal insolvency trustee to reflect any changes in Mary’s financial circumstances. It may be varied or terminated and in that regard, Mary could be subject to an application for adjudication in bankruptcy on the ending, termination or failure of the DSA.
There are grounds for challenge by creditors to Mary’s DSA proposal and there is a role for the courts on application to have a DSA annulled.
Banks will take back homes under mortgage write-off plan
BANKS will take back homes and tie struggling homeowners to years of repayments in return for writing off their mortgage debt.
But the new debt-settlement scheme will not be a debt “free-for-all” as those who tap into it will lose their homes and still have to make repayments based on what they can now afford for between five and seven years before they have their debts cleared by the bank.
The bank will have the power to decide if and when to sell the house — possibly forcing the former owners into private rented accommodation or council housing.
The plans involve a new debt- settlement process, which will allow people with massive mortgage arrears, as well as other personal debts, to avoid going to court and declaring themselves bankrupt.
Anyone seeking to benefit from the new arrangements would have to be assessed by an insolvency expert and would also need the agreement of their bank before they got a debt deal.
If the plan does become law then all of the banks would have to sign up to it.
The Department of Finance, the Central Bank and the banks have been lobbying Justice Minister Alan Shatter for months to exclude mortgage debt from non-court settlement arrangements.
The new insolvency plans were on the agenda for yesterday’s cabinet meeting, with the details about to be handed to the Oireachtas Justice Committee for its comments.
The Government, under pressure from the IMF and European Commission, has promised to publish details of new personal insolvency laws by the end of March.
However, Finance Minister Michael Noonan is understood to be so happy with the plans to include mortgage debt in the new non-court arrangements that he and Mr Shatter agreed to hold a one-to-one meeting to sort their differences.
It is estimated that around 25,000 households have mortgages and other debts that they have no hope of ever being able to pay back.
The Government is keen to ensure the new debt-settlement deals are not manipulated by people who deliberately stop making repayments, even when they can afford to make some payments.
It is estimated that there are between 6,000 and 12,000 mortgage holders who can pay, but won’t. These people are known as strategic defaulters.
Banks are understood to be resisting attempts to include secured debts in settlement agreements, arguing that this is how it works abroad.
But Mr Shatter is concerned that excluding secured debt would make non-court settlements unattractive and people would opt for bankruptcy instead.
Mr Shatter favours setting up an Irish Insolvency Service to oversee non-judicial debt settlements.
Personal insolvency trustees would assess the income and outgoings of those seeking a debt deal and then get all the banks and other lenders owed money by the householder around a table and try to do a deal.
Some payments would have to be made over a number of years before the debt would be written off. Whether this period ends up being five years or seven years has yet to be decided by Government.
The debt deal would be approved and overseen by a state-run personal debt office.
One person familiar with the planned new scheme said: “There is concern that the general public does not end up feeling that the new arrangements are too lenient. But it will not be a debt free-for-all.”
Source – Charlie Weston Personal Finance Editor Irish Independent