Should You Consider Bankruptcy?
Much publicity has surrounded the launch of Ireland’s new personal insolvency system in recent months. Less well publicised has been the major changes to the Irish bankruptcy procedure. In this article the team from the Debt Advice Ireland website consider whether those facing serious problems with personal debt should give consideration to becoming bankrupt.
The headlines have been about Debt Relief Notices (DRN), Debt Settlement Arrangements (DSA) and Personal Insolvency Arrangements (PIA). These new “debt deals” have been created by personal insolvency legislation aimed at helping debtors to tackle insurmountable debt problems. On first sight they appear to offer a solution to the thousands that are struggling with credit card debts, credit union debts, bank loans debts and huge mortgage debts (often connected to properties in negative equity).
It seems likely that, for many, these new options create an effective pathway to move forwards from being trapped in debt. There are however two key issues that might prevent access to the two options created for those with larger personal debts, the DSA and PIA.
Firstly, being able to access a DSA or PIA involves being in a position to offer a financial compromise to your creditors. This can be funded in two ways. Some people might have some surplus income over and above that required to cover their essential bills and expenses. This could be paid over monthly to fund a return to the creditors. Other people might have assets they’re able to sell to make a lump sum payment towards the debts. Those that don’t have a sufficiently high income to make a monthly payment and who also have no significant disposable assets will therefore not have access to a Debt Settlement Arrangement or Personal Insolvency Arrangement.
Secondly, a DSA or PIA will only become approved in the event that enough of the involved creditors consent to the arrangement being put in place. There are many observers that doubt whether banks will voluntarily agree to write off debts (though we’re not sure that we agree with this analysis).
So… if you’re stuck with massive debts that you cannot afford you might find that you don’t have any way to fund a DSA or PIA. Even if you could fund a personal insolvency debt deal there’s a risk that your creditors will not allow it to become established. In either circumstance you’re left with a stark choice. Do you carry on suffering under the weight of debts you’re unlikely ever to fully repay? Or do you decide to become bankrupt?
Many people will recoil in horror at the idea of becoming bankrupt. In many cases however the fears underlying this reaction will not stand up to scrutiny of the facts. Bankruptcy has changed. Here’s what you should know to help you to make an informed decision:
- The rules are changing to enable discharge from bankruptcy after three years. This is a shorter term than that which is applied to either a DSA or PIA.
- You don’t need to make a monthly payment if it’s unaffordable. You’ll be granted expenditure allowances to cover reasonable expenses and bills.
- Creditor consent to bankruptcy isn’t required.
- Depending upon your circumstances it is not necessarily the case that you would lose your home in bankruptcy.
- You’d be able to keep almost all personal and household items.
- You’ll be allowed to keep the tools you require for business purposes.
Obviously becoming bankrupt is a very serious decision to make. Nobody should commit to this process until they have accessed professional one-to-one advice first. However, the fact that it’s a serious decision to make doesn’t mean that it couldn’t be the right decision for many thousands of people.
Author – Debt Advice Ireland is an online debt advice resource. You can read about the various debt solutions that are available to individuals in Ireland. You can ask questions to a panel of debt experts in our online forum. You can also contact our experienced debt advisers for one-to-one advice and information.
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Category: Bankruptcy
