The recently announced Personal Insolvency Bill (PIB) will have dramatic consequences for borrowers who are in serious financial trouble. This is a complex piece of legislation and we have produced a separate document outlining the details of the 3 schemes that will operate. These comments should be read in conjunction with our summary of the bill which can be viewed separately on our website or Facebook page.
I have outlined below some of my observations on this new Bill, some of which will not be clarified until it becomes law later this year.
- The PIB is a voluntary process that is not legally binding on lenders. As a result they have a veto over whether or not to accept proposals from an applicant. In addition applicants have no recourse to an appeals process if the lenders are not cooperative with the proposed arrangements. It is difficult to see how this will operate in practice, however, I would hope that the threat of an applicant opting for bankruptcy would be a major influencing factor for institutions to enter an agreed process. In bankruptcy the amount that a lender would have to write off would be far more considerable.
- Under DSA and PIA arrangements, an applicant must try to settle their debts outside of these 2 schemes before they make an application. This is advisable as once you avail of one of these schemes, your credit rating will be adversely affected for many years to come.
- There has been no clarification in relation to who will be appointed as Personal Insolvency Practitioners. It has been indicated that this may apply to the accountancy and legal professions, which I feel would be highly restrictive. In addition the level of fees that a PIB will be paid remains unexplained.
- The fact that a PIP must ensure to try and retain the family home under any arrangement is to be welcomed. This may not always be possible however.
- As I have indicated previously in relation to the fact that lenders are not obliged to agree to any arrangement, it is compounded by the fact that 65% of an individual’s creditors must be in agreement before matters can proceed further.
- As these 3 arrangements will be ongoing for a considerable number of years, it is uncertain how they will be policed by The Personal Insolvency Practitioners on a day-to-day basis.
- I find it unsettling to read some press reports which suggest that there will be provision within the PIB that an individual may have to sell personal assets as part of an arrangement with their lenders. When referring to personal assets I am talking about items such as cars, valuable furniture/jewellery, etc. Whether this will become part of the day-to-day operation of these schemes remains to be clarified. There is no doubt that this whole process will be a traumatic one for applicants, which should not involve taking away any of their dignity by making this a requirement.
As you can see from some of my comments, there remain a number of issues which need to be clarified both when the Bill is finally enacted into law and how it will operate on a practical basis.
The numbers who may avail of these arrangements has been estimated to possibly be in the region of 30,000 to 40,000 in 2013.