Debt Settlement Arrangements
Debt Settlement Arrangements Explained
Debt Settlement Arrangements (DSAs) are a type of personal insolvency which are suitable for those who want to address unsecured debts, such as credit cards and personal loans.
They are not suitable for those who have mortgage arrears and want to include their mortgage into an arrangement.
What is a DSA?
A DSA is a formal type of personal insolvency that normally lasts up to five years, but can be for a shorter period.
In a Debt Settlement Arrangement your debts are managed by a Personal Insolvency Practitioner (PIP) who makes a proposal to your creditors.
Normally the proposal will be that you will make monthly payments for a fixed period of time, normally 60 months and once those payments are made, the remainder of your debts are written off. This means you pay what you can afford, then get a fresh start. Your creditors normally only receive a dividend or percentage of the money you owe them.
1) Appointing a PIP
The first step in applying is to speak with a Personal Insolvency Practitioner.
They will assess you eligibility to apply for a Debt Settlement Arrangement. They will also consider whether an Arrangement is viable. This is done by completing a Prescribed Financial Statement, and calculating whether you are able to pay something towards you debts.
You must be able to pay something to your debts to enter a Debt Settlement Arrangement, otherwise your creditors will not accept it. If you cannot afford to pay anything, there may be other remedies available, but these can have additional consequences you may wish to avoid.
2) The Protective Certificate
If your Personal Insolvency Practitioner believes a Debt Settlememt Arrangement would be viable, he will apply to the Court for a Protective Certificate. This provides you with 70 days protection, to allow your Personal Insolvency Practitioner to begin negotiations with your creditors before proposing an Arrangement.
3) The Proposal
The proposal your Personal Insolvency Practitioner will make to your creditors normally follow a style that has been agreed with creditors, Personal Insolvency Practitioners and the Insolvency Service of Ireland. This increases the likliehood it will be accepted as many of the terms are standard conditions that apply in most DSAs, although your PIP can propose different terms if it would be appropriate.
Normally, the proposal will be that you will pay what you can afford, which will be agreed by drafting the Prescribed Financial Statement. The payments will normally be for 60 months, or 5 years. In certain circumstances your creditors may accept a shorter payment period.
Once your proposal is drafted, you have to agree to it before it is sent to your creditors.
They then get the opportunity to review it and, if they choose to, can suggest amendments. It is your decision whether or not to accept any proposed amendments.
The cost of operating your Debt Settlement Arrangement will also be dealt with in the proposal and these will normally include your Personal Insolvency Practitioners fees and outlays.
Creditors understand there is a cost and normally agree that these will be deducted from the funds paid into the Arrangement, if it's approved. You still just pay what you can afford for the duration of the Arrangement.
The Proposal will also contain terms that mean if you successfully complete it, the remaining funds owed to your creditors will be written off.
4) The Creditors' Meeting
Your Personal Insolvency Practitioner then calls a meeting of your creditors to let them vote on the Debt Settlement Arrangement proposal.
Each creditor has a vote equal to their share of your total debt that is owed. If 50% of your debt is owed to one creditor, he has potentially 50% of the vote at the Creditors' Meeting.
You do not need to attend the meeting. Often the Creditors don't attend and instead tell your Personal Insolvency Practitionerr how they wish to vote.
If no creditor votes, the Arrangement is deemed to have been approved.
If any creditor does vote, of all those that vote, those with more than 65% of all the debt of those that do vote, have to agree to the proposal for it to be approved.
If the required number of creditors vote in favour of your Debt Settlement Arrangement, your Personal Insolvency Practitioner then submits your proposal and a record of how creditors voted to the Court. If the Court is satisfied the correct procedure has been used, they will approve your Debt Settlement Arrangement.
6) The Register of Debt Settlement Arrangements
Once the Court has approved your Arrangement, it is sent to the Insolvency Service of Ireland who then register it in the Register of Debt Settlement Arrangements. The effect of registering the DSA in the Register is it is legally approved.
7) Operation of Debt Settlement Arrangement
Once your Arrangement is approved your Personal Insolvency Practitioner will contact you to arrange for you to begin making payments to it. You will normally just make one payment per month into a Client Account that is operated by your Personal Insolvency Practitioner and is set up specifically for your case.
The funds in the account are ingathered from the funds you pay in and every 3-6 months (depending on terms of the Arrangement), your Personal Insolvency Practitioner takes his fees and makes payments to your creditors.
Once all payments are completed and you have complied with all other terms of the Arrangement, your Personal Insolvency Practitioner will confirm that your Arrangement has been succesfully completed. The remaining debt that has not been paid off, is written off.