23/02/2023 0 Comments
Insolvency: All Your Questions Answered
As one of Ireland's most established and respected insolvency accountants, McCarthy Walsh has helped businesses and organisations navigate this transitional period.
However, a recurring issue we encounter is a need for clarification on what insolvency means. Therefore, to clarify the insolvency process, we have compiled the most common questions below.
Please keep in mind that the below text is a general overview and should not be seen as a replacement for the advice of a professional accountant.
What is Insolvency?
Insolvency is a financial state in which an individual or entity cannot pay off their debts as they come due. It is often used interchangeably with the term bankruptcy—a legal process that allows individuals or companies to declare their inability to pay their debts and seek relief from some or all of their financial obligations.
Insolvency can occur for various reasons, such as a decrease in income, an increase in expenses, or a significant loss in investments. When an individual or entity becomes insolvent, they may be forced to sell their assets, restructure their debt, or seek bankruptcy protection.
It's important to note that insolvency is not the same as being illiquid, which means that an individual or entity may have difficulty accessing cash or other liquid assets. Insolvency refers specifically to the inability to pay debts as they come due.
How long does insolvency stay on credit file?
In Ireland, the length of time that insolvency stays on a credit file can vary depending on the type of insolvency process that was used.
If an individual entered into a Debt Relief Notice (DRN) or a Debt Settlement Arrangement (DSA), the insolvency would remain on their credit file for three years from the completion date of the process.
If an individual enters into a Personal Insolvency Arrangement (PIA), the insolvency will remain on their credit file for five years from the completion date of the process.
If an individual enters into bankruptcy, the insolvency will remain on their credit file for 12 years from the bankruptcy order date.
It's important to note that while the insolvency may remain on a person's credit file for a certain period of time, it is still possible to rebuild their credit over time through responsible financial behaviour, such as making on-time payments, managing credit utilisation, and avoiding new debts.
What is a personal insolvency arrangement?
A Personal Insolvency Arrangement (PIA) is a debt solution available in Ireland for individuals who are insolvent and unable to meet their debts as they fall due. It is a formal, legal process designed to help individuals with unmanageable debt negotiate a settlement with their creditors and work towards debt-free.
Under a PIA, an individual works with a Personal Insolvency Practitioner (PIP) to create a repayment plan that is affordable for them while also providing a fair return to their creditors. The PIP will review the individual's income, expenses, and debts to determine what they can reasonably afford to pay towards their debts each month. They will then work with the individual's creditors to negotiate a repayment plan typically lasting for five to six years.
During the repayment period, the individual will make regular payments towards their debts according to the agreed-upon plan. At the end of the repayment period, any remaining debt will be discharged, and the individual will be debt-free. However, it's important to note that entering into a PIA will impact a person's credit rating, and the insolvency will remain on their credit file for five years from the completion of the process.
Overall, a PIA can be a valuable option for individuals who are struggling with unmanageable debt and are unable to pay their debts as they fall due. It provides a structured way to negotiate a fair repayment plan and work towards becoming debt-free.
How does insolvency work in Ireland?
Insolvency in Ireland is governed by the Personal Insolvency Act 2012 and provides a range of formal insolvency procedures for individuals who cannot meet their debts as they fall due. The primary goal of the insolvency process is to help individuals regain control of their finances and become debt-free over time.
The leading insolvency procedures available to individuals in Ireland are:
Debt Relief Notice (DRN): This is a debt resolution process designed for individuals with unsecured debts of up to €35,000, few assets, and a low income. The DRN process allows for the write-off of qualifying unsecured debts and typically lasts for three years.
Debt Settlement Arrangement (DSA): This is a formal arrangement between an individual and their creditors designed to allow the individual to repay their debts over five years. The DSA process provides for the write-off of a portion of the individual's unsecured debt.
Personal Insolvency Arrangement (PIA): This is a debt solution designed for individuals with significant debt who cannot meet their debts as they fall due. The PIA process allows for the restructuring of an individual's secured and unsecured debts, typically over five to six years.
Bankruptcy: Bankruptcy is a formal process designed for individuals who are insolvent and have no reasonable prospect of meeting their debts. The bankruptcy process lasts for one year when the individual's assets will be sold to repay their creditors.
To enter into an insolvency process, an individual must work with a Personal Insolvency Practitioner (PIP) who will help them to prepare and submit the necessary paperwork and negotiate with creditors. The PIP will review the individual's financial situation and work with them to determine the most appropriate insolvency solution for their needs. The insolvency process can significantly impact a person's credit rating, and it's essential to consider all options before deciding to enter into an insolvency process.
Please get in touch with our offices today to discuss our insolvency processes with our professional Dublin Insolvency accountants.