THE CABINET has approved the last of the five bills comprising the insolvency framework, which includes details of guarantors’ obligations in respect of the debt.
The final bill, which was approved on Friday, covers personal repayment schemes (consensual or imposed), which protects primary residences from seizure under certain conditions and the role of guarantors, repayment schemes and debt-relief orders.
Consensual personal repayment scheme
A licensed insolvency practitioner will prepare a consensual personal repayment scheme on behalf of the borrower and will apply for a 70-day execution proof court order giving them time to prepare the proposal. However the borrower will be unable to request a personal repayment scheme if more than 25% of the debt was incurred during the six months prior to their application.
The lender is obliged to accept the repayment scheme, which may last for up to 5 years, taking into account “reasonable living expenses” issued by the Commerce Ministry.
The personal repayment scheme will maintain lenders in the same or a better position had they foreclosed on a property.
Primary residences will not be repossessed if the value of the home is below €250,000, the debt does not exceed €300,000 and other property assets do not exceed €250,000. In addition, the borrower must be able to prove a loss of income of at least 25% “for reasons beyond his control” (as a result of the financial crisis.)
When protecting a loan defaulter’s primary residence, the insolvency practitioner must consider four factors:
- The cost of keeping the primary residence, including maintenance, taxes, and insurance.
- The borrower’s income.
- The ability of others living in the house to contribute to repayments.
- The needs of the borrower and his family and the cost of alternative housing arrangements.
Imposed personal repayment scheme
Personal repayment schemes may be imposed on a borrower by a court. They will remain inforce for three years and may be renewed on expiry.
As with personal repayment scheme, imposed repayment schemes will maintain lenders in the same or a better position had they foreclosed on a property.
The borrower’s income exceeding “reasonable living expenses” has to go towards servicing the debt. In addition, all the other borrower’s assets have to be taken into account, with the exception of liquid assets worth less than €35,000 and income generating properties.
The fifth bill also enables lenders to pursue loan guarantors for payment, but restricts the amount they may claim to the difference between the assessed value of the collateral and the size of the loan they guaranteed. E.g. If the unserviced loan amounts to €100,000 and the collateral (property) is valued at €80,000, the guarantor will pay €20,000.
The lender may also pursue loan guarantors for up to two years following the implementation of the repayment scheme.
A guarantor may also take action against the borrower for the amount he may be required to repay.
Coordinated repayment schemes
Coordinated repayment schemes relate to small businesses that employ less than 10 staff and which meet the criteria for personal repayment schemes (above), in which the owner of the business has used their primary residence as collateral for their business’ loan.
An examiner will be appointed to review the borrower’s finances and propose a settlement, which will need to be confirmed by a court.
Borrowers whose loans do not exceed €15,000 may request the Insolvency Service to issue a debt-relief order. The borrower has to demonstrate insolvency for at least two years following their request, their income levels over and above “reasonable living expenses” should not exceed €100 and assets protected during the bankruptcy procedure should not exceed €400.
Debt-relief orders will be issued for a two-year ‘monitoring period’. On expiry the borrower and their guarantors will be relieved of any obligation.