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Pros and Cons of a DSA and PIA

Looking at a DSA (Debt Settlement Arrangement) or a PIA (Personal Insolvency Arrangement) through the eyes of the insolvent debtor reveals the pros and cons of the process. Once the DSA or PIA is accepted at the meeting of creditors and the normal routine approval of the court granted, the debtor can look forward to enjoying a considerable number of advantages, provided they can and do adhere to the agreed terms of the arrangement during the life of the DSA or PIA, as the case may be. Of course there are also some cons for the debtor, both upfront and also if the arrangement should fail in the course of its term of supervision.

Advantages of a DSA or a PIA for the Debtor

Personal Insolvency Practitioner

  • Relief from all qualifying unsecured debts while repaying as much as possible to creditors by single affordable monthly payments over a five or six years term or by a single lump sum payment over a shorter term or by a combination of both over an agreed term.
  • Entitlement to a reasonable standard of living.
  • Avoidance of the stigma of bankruptcy with its associated disabilities, restrictions and obligations.
  • Retention of better control over assets while being able to stay in their home and keep their car in most cases.
  • Possible write-off of a portion of secured debts in the case of a PIA.
  • Retention of employment or if self-employed continuance of trading while remaining in business. Exceptionally, debtors in certain professions may be adversely affected by sanctions imposed by their professional bodies or by their employers if they enter a DSA or a PIA. Debtors need to check out this risk in advance.
  • Achieve debt-free status at the end of the term of the DSA or PIA, usually five or six years and get back on track financially.
  • Protection from creditors including a freeze on interest and penalties on all qualifying unsecured debts as well as cessation of all creditor contact demanding payment including phone calls, texts, letters, e-mails and faxes as well as a halt of all activities by bailiffs and debt collectors.
  • Bind all creditors legally to the terms of the DSA or PIA including dissenting creditors i.e. any creditors who may have voted to reject the debtor’s proposal.
  • Minimal court involvement in dealing with debt and cessation of all court actions by creditors relating to debt recovery.
  • Control of invasion of the debtor’s privacy by newspaper publicity although information relating to the DSA or PIA is published on the website of the Insolvency Service of Ireland.
  • Flexibility that a DSA or PIA offers, particularly if adverse financial or personal circumstances arise during the life of the arrangement when the terms of payment may be varied with the consent of creditors.
  • Repair of the debtor’s impaired credit rating at the end of the term of the arrangement and in due course the ability to borrow money again at standard interest rates once credit ratings have been restored.
  • Sense of satisfaction the debtor can enjoy by repaying a significant percentage of the debts owed to creditors in contrast to the usually lower amounts repaid in bankruptcy, sometimes nothing at all.

Disadvantages of a DSA or PIA for the Debtor

Personal Insolvency Practitioner

  • Having to pay the set-up costs, supervision fees and disbursement costs of the DSA or PIA although these are paid out of the debtor’s affordable contributions to the arrangement and are not additional charges.
  • Should creditors reject the debtor’s DSA or PIA proposal, they are again free to pursue other legal actions such as petitioning for the debtor’s bankruptcy, obtaining court judgments against the debtor and registering charges on the debtor’s assets.
  • The high level of creditor agreement needed for either a DSA or PIA to be accepted.
  • Creditors’ modifications to a debtor’s DSA or PIA proposal may seek to increase a debtor’s monthly contributions into the arrangement thus increasing the risk that the DSA or PIA may fail during its term of supervision if the debtor is unable to sustain the enhanced level of contributions.
  • The term of a DSA is usually five years and that of a PIA is six years. In contrast discharge from bankruptcy in Ireland occurs now after just three years although the debtor may have to make payments for years after discharge.
  • The prohibition on borrowing during the term of the DSA or PIA, except with the express permission of the supervisor and creditors.
  • The impaired credit ratings which a debtor entering a DSA or PIA will suffer and which can only be begun to be repaired when the arrangement is completed. In many cases of course the debtor’s credit rating may already be impaired before the arrangement is commenced due to arrears having already occurred or payments to creditors missed.  
  • The obligation for a debtor who has equity in their home or owns other significant assets to release some or all of that value and contribute it to the arrangement for the benefit of creditors.
  • The risk that the arrangement may fail during its supervision period if the debtor is unable to sustain contributions as required and agreed and where creditors do not accept variation proposals for reducing the debtor’s payments perhaps over an extended term. The debtor may be unable to stick to a regimented regime over five or six years or their financial or personal circumstances may seriously deteriorate possibly culminating in their being forced into bankruptcy.    

Article written by: Paddy Byrne
23/02/2015

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