Posted by Jill Kerby on April 24 2013 @ 09:00
INSOLVENCY PROCESS FLAWS NEED CORRECTING IMMEDIATELY
The website is in place. The helpline is manned. You can now read for yourself the guidelines that are in place that will be used to determine the living standard you will need to adopt if you wish to become insolvent in the eyes of the law.
And that’s about it.
The Insolvency Service of Ireland last week announced that their service would be operational from next June. The headlines are full of the tiny amounts that families will have to live on for the 3-6 years of the insolvency work-outs, but just how eager anyone will be in taking up one of these three options could end up depending on whether the most serious flaws in the process can be amended or corrected in the next two months. These include:
- the insufficient number of licensed PIPs (Personal Insolvency Practitioners);
- clarification of how PIPs will be paid;
- extending the free MABS service outside the Debt Relief Notice option;
- the maintenance of post-discharge registers in the case of people who complete the Debt Settlement and Personal Insolvency Arrangement process;
- the lack of a definition for what is a “sustainable” mortgage.
Let’s start with the Personal Insolvency Practitioners. The Department of Justice has guesstimated that in year one of the new service there will be 3,000-4,000 applicants for Debt Relief Notices for up to €20,000 of unsecured debt and between 15,000-20,000 applicants in total for either a Debt Settlement Arrangement for unsecured debt of any value or a Personal Insolvency Arrangements for unsecured and secured debt worth up to €3 million.
It is now expected that “several hundred” PIPs will be needed to deal with the DSAs and PIAs (The Money and Advice service will handle the DRNs for free.) Not a single one has been recruited, vetted or licensed yet.
Both Alan Shatter, the Minister for Justice and the head of the Insolvency Service Lorcan O’Connor reiterated that the fees to pay the PIPs will come out of the agreed credit repayment to all creditors. However, the Insolvency Service as part of a DSA scenario issued to journalists, noted that in this case,“the PIPs fees are made up of an initial fee of €1,500 to reflect the up-front work undertaken by the PIP and is followed by yearly amounts staggered over the remaining 5 years.”
The insolvency regulation does not specify how the PIPs – solicitors, barristers, accountants and qualified financial advisors- are paid. They will be able to charge a non-refundable upfront fee to potential clients as well as be remunerated from the amount set aside to repay creditors (including themselves.) But because there is no compensation should the insolvency application they design be rejected, the concern is that PIPs will not only demand upfront fees, but opt for high value insolvency cases where not only will their overall fee be higher by the end of the five or six year discharge period, but where an upfront fee is also paid.
Next, the free MABS service is to arrange and administer the Debt Relief Notices for people who are insolvent but with no more than €20,000 worth of unsecured debt, like credit card bills, personal loans or unpaid utility bills.
The expected initial shortage of PIPs – and the problems of finding one that will take on low value insolvency cases – suggests that the free MABS service should be extended and qualified officials from MABS should be licensed as PIPs. MABS itself would then be paid the same fee that would otherwise be paid to the private PIP.
Under the current, flawed legislation, only people who are successfully discharged after three years from their Debt Relief Notice will have their name removed from the public Insolvency Register. Anyone who successfully discharges their Debt Settlement Arrangement after five years or the six year period of a Personal Insolvency Arrangement, will permanently remain on this register.
Being officially stigmatised – for life – could not just impact on future attempts to secure new credit, but perhaps even certain employment. This anomaly could discourage someone from seeking a DSA or PIA and needs to be corrected immediately.
Finally, the key component of the PIA process will be mortgage debt write down, yet there is still no accepted or statutory definition yet of what is a “sustainable” mortgage relative to income/debt. Debtors, their PIPs and the lender/creditors need to have such a guideline before any Personal Insolvency Arrangement that includes mortgage debt will have any decent chance of being approved and the untenable part of the mortgage written off.
Anyone considering seeking protection via the Insolvency Service from the end of July needs to consider all the above. Inform yourself: check out the new website – www.isi.gov.ie. You can also contact the ISI at 0761 064200 or at email@example.com