Financial troubles can cast a long, dark shadow over an individual's life, leading to stress, worry, and a host of related problems. Personal insolvency has emerged as a lifeline for those struggling with overwhelming debt, offering a structured, legally approved route to financial stability and peace of mind.
In his session Personal Insolvency - Overview and Current Landscape, Ken Gannon explains that while the term might initially evoke feelings of dread, personal insolvency has several benefits worth understanding.
Safeguarding Essential Assets
One of the foremost advantages of personal insolvency is the protection it offers to critical assets, especially those that cannot be easily liquidated. For instance, pensions remain preserved if they cannot be converted into liquid assets within a five-year period. This means that even while navigating financial recovery, individuals can maintain the security of their future retirement savings.
Securing the Family Home
The risk of losing one's home is a significant concern for anyone in financial distress. Personal insolvency often includes provisions that allow individuals to retain their family home, helping to maintain a sense of stability and continuity for the entire household. This is a crucial benefit that differentiates personal insolvency from more severe measures like bankruptcy, where asset liquidation can be more encompassing.
Debt Discharge and Credit Restoration
A paramount benefit of personal insolvency is the eventual discharge of debts upon completion of the process. This means that, once the terms of the insolvency agreement are fulfilled, the individual’s debts are legally wiped clean. Beyond the relief of debt elimination, this also sets the stage for restoring one's credit rating. While the journey to rebuilding credit may take time, the resolution of existing debts marks a decisive first step towards financial rehabilitation.
Re-engaging with Creditors
From a creditor’s perspective, personal insolvency offers significant advantages as well. It provides a viable pathway to recover debts from previously unresponsive debtors. By converting non-performing loans into performing assets over an agreed period, creditors can recuperate some of their funds while debtors work towards financial recovery. This win-win scenario facilitates a more cooperative relationship between debtors and creditors.
Maintaining a Decent Standard of Living
Personal insolvency takes into account the necessity of maintaining a decent standard of living for the debtor. This humane approach ensures that individuals are not stripped of their dignity or pushed into undue hardship while they work towards repaying their debts. It strikes a balance between accountability and compassion, recognising that people's needs extend beyond mere financial obligations.
Professional Guidance through Personal Insolvency Practitioners
The involvement of a Personal Insolvency Practitioner (PIP) is another highlight of the personal insolvency process. A PIP acts as an intermediary, ensuring that the process is transparent and fair for both the debtor and creditor. Their primary responsibility is to the court, but they have an equal obligation to both parties involved. This oversight helps in crafting equitable proposals and resolving disputes amicably, often yielding better outcomes than bankruptcy in 95% of cases.
Eliminating Financial Uncertainty
By opting for personal insolvency, individuals can eliminate much of the uncertainty that accompanies financial distress. There is a clear, structured plan in place that outlines how debts will be repaid, over what timeframe, and under what conditions. This certainty can relieve a considerable amount of stress and enable individuals to focus on other aspects of their lives, such as their careers and personal well-being.
Economic Re-stabilisation
For the broader economy, personal insolvency can contribute to economic stability. It allows individuals to become financially active again, participating in the economy as consumers and employees without the heavy burden of unmanageable debt. Additionally, it prevents the societal costs associated with the consequences of bankruptcy, such as increased welfare dependency and potential loss of productivity.
Encouraging Responsible Financial Behaviour
Going through a structured insolvency process can also instil more responsible financial behaviour. It educates individuals about managing their finances, planning for the future, and the ramifications of over indebtedness. This acquired knowledge and discipline can prevent future financial problems, contributing to a more financially literate and resilient population.
In summary, personal insolvency presents a fair, balanced approach to dealing with financial distress. It safeguards essential assets, secures the family home, discharges debts, re-engages reluctant debtors with creditors, and maintains a reasonable standard of living for those involved. The involvement of a Personal Insolvency Practitioner ensures that the process is transparent and equitable, often resulting in better outcomes than bankruptcy. Moreover, this process provides a pathway for individuals to regain financial stability and for creditors to recover debts in a manner that is sustainable for both parties. Thus, personal insolvency helps to create a more stable and responsible financial landscape for the future.
For the full session, please click here. In this course Ken Gannon covers the following topics;
- Personal insolvency – what is it and who can avail of it.
- Types of arrangements
- The process
- Case examples
- Developments in the industry.
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.
