Tipp FM Legal Slot – 27th August 2013
John M. Lynch on PIP’s & Insolvency Service of Ireland Applications
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The Insolvency Service of Ireland (ISI) recently authorised the first Personal Insolvency Practitioners (PIP) in Ireland. The PIPs will be responsible for leading people through the insolvency process, which was introduced under the Personal Insolvency Act 2012. John Lynch is now a registered PIP. How many Personal Insolvency Practitioners are currently registered in Ireland?
Over 100 applications were made by individuals looking to register as a Personal Insolvency Practitioner (PIP). On the first round 14 PIPs were registered by the ISI; there are now 22 to date, with more expected down the line.
The PIP will form the link between the debtor, the Insolvency Service, the creditors and the Courts. They are appointed, licensed and regulated by the ISI to help people set up a Debt Settlement Arrangement or a Personal Insolvency Arrangement.
If an arrangement is successfully negotiated by the PIP he/she will administer it, submit annual reports to the ISI and interact with the various parties involved.
When will the Insolvency Service of Ireland (ISI) begin accepting applications?
The ISI will begin accepting applications from Personal Insolvency Practitioners (PIPs) on Monday, 9th September.
They (Lorcan O’Connor, Director of the Insolvency Service of Ireland), therefore, suggested to people that they engage PIPs at the earliest opportunity to see if they qualify for an Arrangement.
If people want to discuss their debt situation with you, can they now meet you as a Personal Insolvency Practitioner (PIP)?
Since 14th August people who want to discuss their debt situation can come to me as a Personal Insolvency Practitioner (PIP).
Insolvent debtors can now make contact with any practitioner on the ISI register to see if they qualify and to tease out the implications of any arrangement or its alternative. The PIP will act to find a workable solution for the debtor and the creditor.
Recent figures from the Central Bank shows there has been an increase of 2,320 in the number of accounts in arrears. This means that 12.7% of private residential home loans, or almost 98,000 mortgages, are more than 90 days behind on repayments. What steps should people who are in mortgage arrears take?
The Mortgage Arrears Resolution Process (MARP) is a procedure introduced by the Central Bank of Ireland in their Code of Conduct on Mortgage Arrears since 1st January 2011 to deal with situations where a borrower is in difficulty in meeting their mortgage payments.
This process exists independently of the Personal Insolvency Act 2012, but people with mortgage arrears need to engage with the MARP’s five-step process.
The Central Bank’s statutory Code of Conduct on Mortgage Arrears (CCMA) outlines a framework that lenders must use when dealing with borrowers who are in mortgage arrears or at risk of falling into arrears. Lenders have to set up a centralised and dedicated Arrears Support Unit (ASU) to manage cases under the MARP.
The Central Bank amended this code on the 1st of July 2013 to allow the earlier sale of distressed assets and to force the Banks to make long terms arrangements for arrears customers.
The Mortgage Arrears Resolution Process (MARP) involves five steps: communication; financial information; assessment; resolution and appeals.
What is the five step process introduced by the Central Bank?
The MARP is a five-step process where lenders have to:
1) Communicate with borrowers;
The borrower must be informed that a third party has been appointed to deal with them, no more than three unsolicited communications with the borrower can be made each month, the date that arrears began, number of payments missed and amount of arrears must be sent to the borrower as well as details of fees and charges which apply regarding the arrears.
2) Get financial Information using a standard financial statement;
A statement of financial affairs must be sent to the borrower for completion and once received back must be sent to the Arrears Support Unit to be considered.
3) Complete an Assessment of the borrowers case;
The Arrears Support Unit must assess the financial statement using:
- The personal circumstances of the borrower;
- The overall indebtedness of the borrower;
- The information in the standard financial statement;
- The borrower’s current repayment capacity; and
- The borrower’s previous payment history.
4) Consider Options to resolve the arrears;
Such alternative repayment arrangements must include:
a) An interest-only arrangement for a specified period;
b) An arrangement to pay interest and part of the normal capital element for a specified period;
c) Deferring payment of all or part of the instalment repayment for a period;
d) Extending the term of the mortgage;
e) Changing the type of the mortgage, except in the case of tracker mortgages;
f) Capitalising the arrears and interest; and
g) Any voluntary scheme to which the lender has signed up e.g. Deferred Interest Scheme.
5) Consider Appeals
Lenders must set up an Appeals Board to independently review any appeals by borrowers to alternative arrangements recommended with these rules:
- The Appeals Board will only consider written appeals;
- The lender must acknowledge each appeal in writing within 5 business days of the appeal being received;
- The lender must provide the borrower with the name of one or more individuals appointed by the lender to be the borrower’s point of contact in relation to the complaint, until the Appeals Board adjudicates on the appeal;
- The lender must provide the borrower with a regular written update on the progress of the appeal , at intervals of not greater than 20 business days;
- The lender must consider and adjudicate on an appeal within 40 business days of having received the appeal. The lender must notify the borrower in writing, within 5 business days of the completion of the consideration of an appeal, of the decision of the Appeals Board and explain the terms of any offer being made. The lender must also inform the borrower of his/her right to refer the matter to the Financial Services Ombudsman and must provide the borrower with the contact details of that Ombudsman.
What new debt solutions may be available under the new regime for people who can no longer repay their mortgage as it stands?
Under the Act the debt options available to those in difficulty are a Debt Settlement Arrangement (DSA) and a Personal Insolvency Arrangement (PIA).
The PIA will apply specifically to mortgage holders and those with secured and unsecured debts of €20,000 to €3 million (at least one creditor must be secured).
The process is similar in that the PIP will make the application after the financial statement has been completed and 65% of the lenders again must be in agreement for some of the debt to be written down. A protective certificate also issues here if all is in order and the Insolvency Practitioner must then notify the relevant creditors of the issue of the protective certificate and the proposed PIA, seek creditor submissions and provide them with certain documents.
Those who avail of a Personal Insolvency Arrangement can only do so once.
Specific provisions are included which are designed to ensure that a minimum amount is payable to secured creditors and that any write-down does not reduce the amount to be paid to the secured creditor on the sale of the property below the lesser of the value of the security or the amount of the debt secured thereby. It also provides for revision if the property is subsequently sold for an amount greater than the written-down value of the debt it secured, unless agreed otherwise.
All secured debts (except family homes) are treated the same.
When would a Debt Settlement Arrangement be an option?
A Debt Settlement Arrangement – (DSA) covers loans with two or more creditors in the amount of €20,000 or more. The borrower will have to pay off a certain amount for up to 5 years and the balance may possibly then be written off.
A DSA allows for settlement of unsecured debt; secured debt is unaffected.
It is a once in a lifetime option and may be proposed by a debtor to one or more creditors for the settlement of unsecured debts.
The debtor must be insolvent and meet certain eligibility criteria. The option cannot be availed of if 25% or more of the debts in question arise within 6 months of the application.
The debtor must provide a written statement of his financial affairs to an Insolvency Practitioner who manages any proposals to creditors.
The Insolvency Service will, if it is satisfied that the application is in order, issue a certificate to that effect and forward this to the courts who can then issue a protective certificate (lasting 70 days with provision for extension). This then limits further enforcement for that period. The Insolvency Practitioner must then notifies the relevant creditors, and invites submissions as to how the debts might be dealt with.
At a meeting, Creditors who hold not less than 65% in value of the debts due must approve the DSA.
If the DSA is approved by the court it takes effect once registered by the Insolvency Service in the Register of Debt Settlement Arrangements. It lasts for 5 years (with a possibility of an extra year) with the debtor discharged after this time.
What happens if an arrangement is not suitable or people are still unable to meet their repayments?
Bankruptcy is the fourth and least preferred debt option under the Act.
As the landscape of debt has changed dramatically the Personal Insolvency Act also has changed the bankruptcy legislation. Under the new regime in Ireland the Bankruptcy period has been reduced to 3 years;
The objective of the Debt Settlement Arrangements introduced by the Insolvency Act is to take an insolvent person through the process and help them become solvent. People will first deal with the Personal Insolvency code and the last option will be bankruptcy.
The Court may decide that people should not enter bankruptcy and enter into insolvency arrangements.
In bankruptcy situations people lose control of their assets and are under the jurisdiction of an official of the bankruptcy court for the period of time they are in bankruptcy and the assets are sold and realised.
How long does bankruptcy last?
The Personal Insolvency Act 2012 has taken steps to reform the Bankruptcy Act 1988. A significant new measure under the Act is to reduce the bankruptcy period from 12 years to 3 years (or in some cases 8 years). Prior to this, people were in bankruptcy for 8 years; before that it was 15 years and indefinitely at one point.
It is hoped that the new measures under the Act to reduce the bankruptcy period from 12 years to 3 (or in some cases 8) years will allow people to wipe the slate clean and make a fresh start once this period has expired.
In what circumstances could the new bankruptcy period be extended beyond 3 years?
In certain circumstances, the bankruptcy period could be 8 years, instead of 3, because after the initial 3 years the court may decide the debtor has to continue paying his past creditors for a further 5 years.
The Official Assignee, a trustee or a creditor can object to the automatic discharge of someone from bankruptcy after three years where there is lack of cooperation or nondisclosure. This could extend the bankruptcy period to 8 years. The court also has power to make a bankruptcy payment order for up to 5 years after discharge from bankruptcy.
The Act also covers excess of pension contributions which can be subject to the control of the official assignee. It should be remembered that unrealized assets continue to be vested in the official assignee after discharge from bankruptcy.
We are now working on new debt arrangements for clients and as I stated earlier the ISI will begin accepting these applications on Monday, 9th September.
For anyone who is insolvent – they can no longer meet their payments as they fall due – the old adage of first in – first out applies and with that in mind the sooner these options are explored and used the sooner those who avail of them will be released from their debt and will find themselves able to prosper again.
