Personal Insolvency Act 2012

Secured creditors and Personal Insolvency Arrangement.

102.— (1) Where a secured creditor has been notified by the personal insolvency practitioner that a protective certificate has been issued in respect of the debtor the secured creditor concerned shall furnish to the personal insolvency practitioner an estimate, made in good faith, of the market value of the security and the creditor concerned may also indicate, a preference as to how, having regard to subsection (3) and sections 103 to 105 , that creditor wishes to have the security and secured debt treated under the Personal Insolvency Arrangement.

(2) In formulating the proposal for a Personal Insolvency Arrangement the personal insolvency practitioner shall—

(a) have regard to subsection (3) and sections 103 to 105 , and

(b) to the extent that he or she considers it reasonable to do so, have regard to the preference of the secured creditor furnished under subsection (1) as to the treatment of the security and the secured debt.

(3) Subject to sections 103 to 105 , the terms of a Personal Insolvency Arrangement may provide for the manner in which the security for a secured debt is to be treated which may include:

(a) the sale or any other disposition of the property or asset the subject of the security;

(b) the surrender of the security to the debtor; or

(c) the retention by the secured creditor of the security.

(4) Failure by the secured creditor to furnish valuation and the indication of preference relating to the security under subsection (1) within the period specified by the personal insolvency practitioner or such further period as may be offered by him or her shall not prevent the personal insolvency practitioner from formulating a proposal for a Personal Insolvency Arrangement.

(5) Where a Personal Insolvency Arrangement provides for the sale or other disposal of the property which is the subject of the security for a secured debt, and the realised value of that property is less than the amount due in respect of the secured debt, the balance due to the secured creditor shall abate in equal proportion to the unsecured debts covered by the Personal Insolvency Arrangement and shall be discharged with them on completion of the obligations specified in the Personal Insolvency Arrangement.

(6) Without prejudice to the generality of section 100 or subsections (1) to (3) and subject to sections 103 to 105 , a Personal Insolvency Arrangement may include one or more of the following terms in relation to the secured debt:

(a) that the debtor pay interest and only part of the capital amount of the secured debt to the secured creditor for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;

(b) that the debtor make interest-only payments on the secured debt for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;

(c) that the period over which the secured debt was to be paid or the time or times at which the secured debt was to be repaid be extended by a specified period of time;

(d) that the secured debt payments due to be made by the debtor be deferred for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;

(e) that the basis on which the interest rate relating to the secured debt be changed to one that is fixed, variable or at a margin above or below a reference rate;

(f) that the principal sum due on the secured debt be reduced provided that the secured creditor be granted a share in the debtor’s equity in the property the subject of the security;

(g) that the principal sum due on the secured debt be reduced but subject to a condition that where the property the subject of the security is subsequently sold for an amount greater than the value attributed to that property for the purposes of the Personal Insolvency Arrangement, the secured creditor’s security will continue to cover such part of the difference between the attributed value and the amount for which the property is sold as is specified in the terms of the Personal Insolvency Arrangement;

(h) that arrears of payments existing at the inception of the Personal Insolvency Arrangement and payments falling due during a specified period thereafter be added to the principal amount due in respect of the secured debt; and

(i) that the principal sum due in respect of the secured debt be reduced to a specified amount.

(7) Subject to subsections (3)(b), (9) and (10) a creditor who has registered a judgment mortgage against a debtor more than three months before the Insolvency Service’s issue of the protective certificate is a secured creditor for the purposes of a Personal Insolvency Arrangement.

(8) Where requested by the personal insolvency practitioner to do so, a secured creditor shall provide proof of the existence and nature of the security with respect to the relevant secured debt, in default of which, the personal insolvency practitioner may treat the debt as unsecured debt for the purposes of this Chapter.

(9) Notwithstanding subsection (1) where the market value of the security held by a secured creditor in respect of a secured debt is less than 10 per cent of the amount of that secured debt, the secured creditor may, upon giving notice in writing to the personal insolvency practitioner, elect to be treated as an unsecured creditor for the purposes of this Chapter, other than this subsection and subsection (10).

(10) Where the personal insolvency practitioner receives notice of an election referred to in subsection (9), the personal insolvency practitioner shall formulate the proposal for the Personal Insolvency Arrangement on terms providing for the surrender of the security to the debtor and shall treat the creditor as an unsecured creditor for the purposes of this Chapter, other than this subsection and subsection (9).

(11) Without prejudice to section 103 , where a Personal Insolvency Arrangement includes terms providing for a reduction of the amount of debt (including principal, interest and arrears) secured by the security as of the date of the issue of the protective certificate to a specified amount, the terms of the Arrangement shall, unless the relevant secured creditor agrees otherwise, also include a term providing that the amount of such reduction shall:

(a) rank equally with, and abate in equal proportion to, the unsecured debts covered by the Arrangement; and

(b) be discharged with those unsecured debts on completion of the obligations specified in the Arrangement.