Clonmel's Lynch Solicitors on dealing with debt and the family home
Bankruptcy is a process where the property or assets of a borrower who is unable or unwilling to pay their debts are transferred to a person who is given charge of the property by the High Court (called the Assignee) to be sold.
When sold, the costs, expenses, court fees and certain priority debts of lenders (such as revenue liabilities, local rates, certain employees’ entitlements etc) are paid. After this, the proceeds are divided between all other lenders who are owed money.
What is personal insolvency?
Personal insolvency is when money is owed by a person as opposed to a company and they are unable to repay this money under the terms that they agreed for repayment.
Insolvent means that you are unable to pay your debts in full as they fall due. If you are not in a financial position to repay your loan instalments or can only afford to pay part of them, you may be considered insolvent.
What is a personal insolvency arrangement?
Arrangements were introduced by legislation in 2012 as a new way of dealing with the management of debt.
The legislation sets out three entirely new arrangements that borrowers can enter into with lenders to manage debts they are unable to pay: debt relief notices, debt settlement arrangements and personal insolvency arrangements.
The legislation also sets up for the first time a dedicated body called the Insolvency Service of Ireland (ISI) to oversee and regulate how debt will be dealt with under these arrangements. See www.isi.gov.ie.
There are three elements which safeguards an individual’s integrity by protecting the family home, protecting the individual’s entitlement to a livelihood and guaranteeing an individual a reasonable standard of living. The baseline process brings an individual from insolvency to solvency.
If I think I am insolvent, what can I do?
If this is the case you should contact a personal insolvency practitioner (PIP) as soon as possible in order to get advice on what options are available to you to deal with your debt. A PIP is the person mandated by the legislation to implement the new Statutory Insolvency Scheme.
A PIP is somebody specially licensed and regulated by the ISI to deal people who are unable to pay their debts. PIPs can be either solicitors, barristers, accountants or other qualified financial advisers who have undergone the required training and have shown the ISI that they are capable of dealing with insolvency situations.
A PIP will ask you to provide certain financial information and will then set out your options to you as to how to deal with your financial picture.
What is a debt settlement arrangement?
A debt settlement arrangement (DSA) covers unsecured personal debts in the amount of €20,000 or more. The borrower will have to pay off a certain amount for up to five years (with the possibility of an extra year) and the balance may possibly then be written off. A DSA allows for settlement of unsecured debt, with secured debt unaffected.
It is a once in a lifetime option and may be proposed by a borrower to one or more creditors for the settlement of unsecured debts. A creditors meeting is held and a prescribed percentage of the creditors must approve the arrangement. A prescribed financial statement (PFS) will be prepared and will be used to calculate the various proposals.
The other option to deal with debt is to make an application for bankruptcy. Effectively, all of your assets are transferred to the assignee in bankruptcy and all of your debts are written off.
You are in bankruptcy for one year and will be making income payments for a full period of three years.
Will I lose my home?
In a personal insolvency arrangement, there is a statutory presumption that you are entitled to retain your family home if at all possible.
Your interest in the family home is transferred to the assignee in bankruptcy. If the family home remains in negative equity for a period of three years, the assignee will transfer the property back to you. If the home is not in negative equity, you may be able to negotiate the purchase of your interest back from the assignee.
Therefore, losing your family home is not a certainty and may not even be likely depending on your circumstances.
If the family home is mortgaged, then in practice the bank owns the family home until the mortgage is repaid. The bank will usually choose to keep the property outside of bankruptcy proceedings and enter into an arrangement with you which would allow you continue to live there, repay the mortgage during your bankruptcy period and be in a position after bankruptcy to reclaim full ownership of the home once all mortgage payments are made in the future.
For further advice or if you wish to discuss any other legal area, please contact email@example.com or telephone 052-6124344.
The material contained in this blog is provided for general information purposes only and does not amount to legal or other professional advice. While every care has been taken in the preparation of the information, we advise you to seek specific advice from us about any legal decision or course of action.