Resolutions subject to approval by the court

Debt arrangements reached between borrowers and banks will be subject to court approval under the Personal Insolvency Bill.

The legislation creates a new “non-judicial” debt resolution process allowing the write-off of debt of less than €20,000 or, if the sum is greater, to enter into debt settlement arrangements or personal insolvency arrangements with lenders.

It had been intended that the legislation could keep such arrangements away from lengthy and costly court procedures.

However, Justice Minister Alan Shatter said that in order to ensure there is no “constitutional difficulties” with the proposed law, the Attorney General advised “the arrangements should go to the circuit court and, in effect, be approved by that court”.

Mr Shatter said the court’s involvement will merely be to “sign off” on debt arrangements 21 days after they are lodged to the courts, provided no objections are raised.

It will allow creditors, for example, to raise objections if they find a debtor has fraudulently hidden assets.

“Few of them should give rise to any contested court applications or proceedings and they will truly be non judicial debt resolutions,” said Mr Shatter.

An insolvency agency will be established to operate the new resolution process.

There will be three separate debt resolution schemes:

* Debt relief notices will allow for the writedown of debt of up to €20,000. The terms to qualify are strict and the debtor will have to have a monthly income of €60 or less after the provision of “reasonable” living expenses.

They must hold assets of €400 or less, with the exemption of certain household appliances or tools needed for employment up to the value of €1,200.

* Debt settlement arrangements are for unsecured debts of €20,000 where there is no mortgage. They are aimed at people who have an income and may be able to repay the debt in time, but a writedown is the most likely outcome.

* Personal insolvency arrangements will operate in a similar way but are for secured debt up to €3m so will include mortgage arrears. They will give a debtor six years to repay and, said Mr Shatter, are designed “to facilitate a debtor continued ownership and occupation of his principal private residence”.

He also said there is an obligation on the debtor to make a full disclosure of all finances. A false declaration is a criminal offence.