Strengthening the Personal Insolvency Framework to Support Mortgage Holders in Arrears
Yesterday the government announced the introduction of a number of new measures which will help support mortgage holders who are in arrears. It has been just over two years since the introduction of the personal insolvency legislation and the measures announced yesterday aim to improve the existing process.
One of the main features of the announcement is that the government has agreed to give Courts the power to review and where appropriate to approve personal insolvency deals that have been rejected by banks so this should mean that the number of cases being processed successfully via the ISI (Insolvency Service of Ireland) should rise. The banks will now have to engage with customers who are in arrears and give their situation due consideration, which can only be a positive for many of those who are finding themselves in financial difficulty.
Mortgage to Rent Scheme
The government also announced the expansion of the mortgage-to-rent scheme. Under this scheme people who cannot pay their mortgages can sell their property to a housing association and then rent it back from them. This move will hopefully help reduce the number of home repossessions and fewer families will experience the stigma and emotional stress associated with the threat of losing their family home.
Expanded Role for MABS
The Money Advice and Budgeting Services (MABS) role has also been extended - they can now provide assistance to those in arrears to identify their best options and completing financial statements however anyone wishing to avail of a Debt Settlement Arrangement (DSA) or a Personal Insolvency Arrangement (PIA) needs to apply for these arrangements via a Personal Insolvency Practitioner (PIP).
Changes to the Bankruptcy rules
Labour TD Willie Penrose had put forward a proposal to reduce the bankruptcy period from three years to one but a decision on this has been deferred by the government for review by the finance committee.
Deferral of Repossessions
The director of the ISI Lorcan O’Connor was on RTE Radio this morning talking about the changes and stating that a debtor whose home is up for repossession will be able to ask a Judge to defer proceedings for repossession to allow him the opportunity to consult with a PIP.
Write downs on the Family Home & Split Mortgages
Under the Personal Insolvency legislation a debtor can apply for a write-down of the debt on their family home to its market value and pay a dividend towards the negative equity (residual debt) over a 6 year period. At the end of the 6 year term the balance of the residual debt on the home loan is written off. This leaves the debtor with a sustainable mortgage and in most cases it is a better alternative to the nuclear option of bankruptcy for both the debtor and their creditors. The removal of the creditors veto will have an interesting impact on those borrowers who have agreed split loans with their bank but may have been reluctant to make an application for a PIA on the assumption that it would be voted against.
Although none of the measures above could be considered a silver bullet to resolve personal debt and mortgage arrears they are a most welcome development.
Having been involved in the personal insolvency sector since its inception I can honestly say that these measures could and should have been implemented a few years ago but they are a direct result of a lack of creditor engagement in the personal insolvency process and a lack of willingness by the banks to accept that those with unsustainable debt are not in a position to carry the burden of this debt on their shoulders for the rest of their lives.
The personal insolvency legislation was introduced to solve the problem of unsustainable debt in Ireland, over the course of the next 12 months it will be interesting to see if the creditors show a willingness to engage with those in debt. If not, then further measures will have to be enforced by government.
My advice to anyone who is concerned about their level of debt is to please contact a professional advisor to investigate and understand the solutions that are out there for you.
Quintas are currently running FREE Debt Resolution and Personal Insolvency information evenings. If you would like to avail of this one to one service, in the strictest of confidence, call us on 021 4641400 or email email@example.com
Mark Ryan, CPA, Personal Insolvency Practitioner (PIP) Director, Quintas