Personal Insolvency for the separated
Ms Justice Marie Baker’s recent decision will help guide how banks consider personal insolvency arrangements – debt write-off plans for individuals needing a financial leg-up – when a spouse is no longer around or helping to repay the couple’s joint debts.
The mechanism through which a debtor can go to court and challenge a bank’s veto against a personal rescue plan agreed with PIP – section 115A of the Personal Insolvency (Amendment) Act 2015 – is relatively new
While debtors have challenged bank vetoes in the Circuit Court, just five section 115A cases have gone to the High Court so far. One case involves the debts of the separated woman, where the bank objected to the plan offered by PIP because it felt the arrangement would have prejudiced it because the estranged husband did not agree to the proposed changes and the deal might have prevented it from pursuing any claims against him as a co-debtor on the mortgage. The judge found the deal was not unfairly prejudicial to the bank, EBS. She considered the woman to be “reasonably likely” to be able to make the new repayments in light of a court order and an attachment of earnings concerning the payment of child maintenance. As for the issue of the separated couple, the judge said the arrangement did not deprive the bank, as a secured creditor, of any right to pursue the husband as a co-debtor or co-mortgagor.
The judgment is seen as very significant, given the number of personal insolvency cases involving separated couples. Previously, banks were unable to complete deals with one debtor without their other half signing up too.
The Insolvency Service of Ireland released statistics in February 2017 showing that divorced or separated individuals accounted for almost 15 per cent of applicants seeking some kind of debt relief agreement, either in cases involving unsecured debt or secured debt in personal insolvency arrangements so the judgment may help others in similar situations to resolve a complex problem.
“It is massively significant,” said barrister Keith Farry, who presents personal insolvency cases in court. “It is a huge decision. I won’t say that it is obvious but the Act clearly spelled out that it is personal insolvency, it is individual insolvency and just because one person didn’t agree to an arrangement, it couldn’t be binding or have an effect on others.”