What is a PIA?

Applications for PIA’s more than doubled in the first three months of 2017 when compared to the equivalent period in 2016. A PIA provides for the agreed settlement of secured debt up to a limit of €3 million (although this cap may be increased with the consent of all secured creditors) and an unlimited amount of unsecured debt. The standard PIA term is for 6 years.

This is a link to the Insolvency Service of Ireland’s Statistics: Quarter 1 2017 – Click here.

 What is a split mortgage?

A split mortgage arrangement splits the mortgage into two parts. Agreed repayments are made on the first part of the mortgage and the second part is warehoused or set aside to be paid at a later date. For example, a property was purchased for €350,000 in 2007 and on the basis of a valuation it is now worth €150,000. The balance now outstanding to the bank is €300,000, the loan is in arrears and the home owner can only afford monthly repayments on a mortgage of €150,000. The bank proposes to restructure the loan as follows:

Tranche A        €150,000 repayable over the mortgage term (say 23 years) at a set monthly mortgage repayment

Tranche B        €150,000 repayable at the end of the mortgage term and there is usually 0% interest on this loan. No monthly mortgage repayments are made on this warehoused part.

The intention of the bank is that the borrowers make a lump sum payment or sell their property at the end of the mortgage term in order to clear the tranche B loan.

It is very unlikely that the borrowers would be in a position to clear the loan at the end of the term. It is also unlikely that they would be in a position to purchase alternative accommodation. Their options at that stage would be to rent or add their names to the growing social housing list.

Whilst the split mortgage solution provides breathing room for the borrower in the short term it can only be considered as kicking the can down the road – potentially leading to another housing crisis!

However, the borrowers in this landmark ruling of Judge Baker argued that a split mortgage which was the counterproposal of KBC Bank should not be used in conjunction with a PIA because a PIA has a fixed term of 6 years, whilst a split mortgage could be in place for many years before it is resolved. The debtors argued that the proposal to warehouse a debt must bring the warehoused element into account in the currency of a PIA, and that the deferral period in this case should not be permissible as the term for the payment of the warehoused amount was far outside the 6 year proposed term of the PIA. The personal insolvency legislation requires that a debtor be returned to solvency at the end of the 6 year PIA term.

Judge Baker agreed with an earlier Circuit Court finding that a split mortgage used as part of a PIA would be unsustainable. Judge Baker said The counterproposal was “benevolent” but it was “capable of creating circumstances amounting to insolvency at the end of the mortgage term in approximately 23 years’ time”. According to the Judge, warehousing some of the debt, as KBC proposed, presented a hazard and was unfair to the debtor.

In this case the Judge agreed that the warehoused portion proposed by the Bank should be written off.

This is a link to an article from the Irish Independent in regard to the Judge Baker ruling – Click here.

Free Consultation

Do you wish to make a proposal for a PIA or do you wish to learn more about the personal insolvency process? Or are you a home owner and in mortgage arrears and want to know whether you would be eligible for a MABS voucher to meet and obtain free initial advice from Mark Ryan, PIP, setting your options, then contact the Personal Insolvency Department at Quintas.

Yours sincerely:

Mark Ryan, CPA,

Personal Insolvency Practitioner (PIP),

Director, Quintas

Mark Ryan is authorised by the Insolvency Service of Ireland to carry on practice as a personal insolvency practitioner.

Mark Ryan has been operating as a PIP since the inception of the Personal Insolvency legislation in 2012. With years of experience in negotiating debt restructures, personal insolvency arrangements and dealing with bankruptcy applications our team can advise you on the best course of action.