Ireland has one of the most powerful personal insolvency systems in the world, which is good news for people shouldering mounting debts.
Although debts come in all shapes and sizes, the biggest problem in Ireland is mortgage arrears. According to the Insolvency Service of Ireland (ISI), while the overall number of mortgage accounts in arrears has fallen each quarter since this time in 2013, there are still more than 70,000 such accounts in arrears. These represent €13.5bn of debt and 10% of all mortgage accounts in Ireland.
While some people manage to deal with their debt by rejigging their budget, many more have no prospect of getting out from under it. And while lenders will sometimes agree to informal, alternative arrangements, these are not easy to secure. In these situations, it’s worth knowing that there are several insolvency routes available.
Types of insolvency
For people who owe less than €35,000, do not own a home (or other large asset), have a low income, and are unlikely to be able to settle their debts within the next three years, a debt relief notice (DRN) might be a good option. This allows for the write-off of debt after a three-year supervision period.
For those who can keep up with their secured debts – mortgages or other loans secured against their home/vehicle/other assets – but cannot pay their unsecured debts – credit cards, utility bills, medical bills – a debt settlement arrangement (DSA) may be suitable. This lets debtors settle a certain amount of their debts over five years, after which the loan is written off.
Then there is a personal insolvency arrangement (PIA), aimed at those who can pay neither their secured nor unsecured debts, have secured debts of no more than €3m, and have worked with their lender for at least six months to try to establish a repayment arrangement. This allows debtors to pay what they can towards both secured and unsecured debts over a period of six years, after which the unsecured debts are written off – in most cases, the secured debts will be restructured and will continue to be paid following the conclusion of the PIA.
Finally, there is bankruptcy. You can apply only if you do not qualify for any of the other insolvency arrangements – this will have to be confirmed in an affidavit – and only if your debts exceed your assets by at least €20,000. Once you have declared bankruptcy, you hand over your assets, your unsecured debts are written off and you are discharged from bankruptcy after 12 months. You can have only one DRN, DSA or PIA in your lifetime, but there’s nothing restricting someone from declaring bankruptcy more than once. If you do choose to declare bankruptcy make sure that you are using a reputable bankruptcy attorney in Pennsylvania or the region that you live, to ensure that the process goes smoothly and you do not find yourself dealing with hiccups further down the road. Bankruptcy, after all, might be the end of your money, but it is not the end of your life.
Whom to contact
To get advice on and apply for a DRN, the Money Advice and Budgeting Service (Mabs) is your point of contact. You don’t have to share the complete burden of the debt, however. For the rest, contact the ISI, which can advise you. They could be able to put you in touch with a personal Insolvency Practitioner
“PIPs are the best-kept secret in the country,” said Shelagh Marshall, a Cashel-based PIP. Marshall is seeking nomination for Fine Gael in Tipperary largely because she wants to help address the mortgage arrears problem.
“Many debtors don’t know who we are but, between us, we have done 4,000 cases in four years.”
In the case of a DSA or PIA, your PIP would apply for a protective cert. This lasts 70 days.
“The protective cert is like a ring of steel around the debtor,” said Ross Maguire SC, the founder of PIP specialist New Beginning.
“No one can touch them in that time, during which the PIP tries to negotiate a deal between the debtor and creditor, based on what each party wants.”
Between the last quarter of 2013 and the second quarter of this year, almost 70% of DSA cases ended in a yes vote from the creditor; for PIAs, this figure was 56%.
If the creditor turns down the proposal, and the case involves a family home, the decision can be appealed through the court review system. This option does not apply, however, to unsecured debts.
“The PIA was set up specifically to deal with the mortgage arrears crisis; government policy is to try to keep people in their homes where possible,” said Maguire. “There has been a series of decisions in the High Court where the courts have enforced very substantial debt writedowns.”
Marshall said this has helped matters considerably but could be stymied by action taken by several banks to try to put the onus – and expense – of seeking these reviews back on the PIP, rather than the debtor.
Meanwhile, in a recent statement to the Oireachtas joint committee on justice and equality, the ISI head Lorcan O’Connor said that he did not believe creditors were constructively engaging with the personal insolvency legislation, with banks “rejecting proposals that produced a better return than repossession” and mounting challenges to PIAs “on technical rather than commercial grounds”.
There is no charge for a DRN via Mabs; neither does the ISI charge fees. The cost of applying for bankruptcy is €270. However, if you need to contact a PIP, whether for a DSA or PIA, there will be a charge involved.
“A PIP will charge a consultation fee to go through a person’s financial situation to determine whether they are eligible to apply for a DSA or PIA,” said an ISI spokesman. “After that, any PIP fees are usually built into the DSA/PIA repayment plan.”
That’s assuming you do not qualify for a voucher from Mabs under the Abhaile scheme, which allows borrowers with mortgage arrears to meet a PIP for free advice. The priority is to find a sustainable solution that keeps a person in their home.
To qualify for Abhaile, you must have been in arrears on January 1, 2015.
While any insolvency option will show up on your credit history, that does not necessarily mean you will be precluded from getting credit in the future.
“If a person is in arrears on payments, this could already be known to credit rating reference agencies,” said the ISI spokesman. “Entering into a PIA should indicate to potential lenders that a person is proactively addressing their financial situation and, on completion of the arrangement, they will be solvent, which means they could be more eligible to obtain credit.”
Tackle your debt now
Despite the problems with the system, Marshall said she had many successes under the insolvency legislation, with positive outcomes.
“People coming in to us are very vulnerable, and you have to be realistic with them. But even though we’re aware of these issues with the system, we don’t want people to stop engaging. Go to a PIP; you will get good advice.”
Maguire said people tended to react in one of three ways when they found themselves in excessive debt.
“Some people know they’ll never be able to pay it, so they reckon there’s no point in engaging [with the lender]. Some think they’re just going through a bad phase and they’ll be OK. And then you have the malingerers.”
Helen Just is the Ireland services team leader with debt charity Step Change. She said some callers just wanted to talk to someone about their financial worries, while others needed advice as to which debts to prioritise.
“We often find that unsecured creditors shout louder than the mortgage lenders, and the normal human reaction is to pay the person shouting loudest,” she said. “But you may be putting your home at risk by doing that, so we’ll talk to people about whom they should pay first and why.”
The charity asks callers about their concerns and then runs through their income and expenditure. It then helps them put together a budget, using the ISI’s reasonable living expenses guidelines as a starting point.
The charity can put together a proposal for the person’s lender. “Say someone is paying a mortgage of €1,000 a month but, after we’ve looked at their budget, we can see they have only €700 a month for it. We can ask the lender if there’s anything they can do.”
Failing that, Step Change will talk through the various types of personal insolvency and suggest which might suit. “We will direct people to Mabs for a DRN, or recommend a PIP if it looks like they’ll need a DSA or PIA.”