Modern insolvency law strikes a balance between the interests of creditors and debtors whereas our current insolvency laws favour only creditors. Recently, the government announced that struggling homeowners will be given the chance to write down their debt on their mortgages by spreading it over a six year period. The deals will be dealt with on a case by case basis and creditors, such as banks, will have to agree. Minister for Justice, Alan Shatter, has said that the Bankruptcy and Insolvency proposals will be published by the end of April and enacted by July or September.
Purpose of the Personal Insolvency Bill for Borrowers
Essentially, the Personal Insolvency Bill will help people to manage personal debt through budgeting advice and new arrangements with lenders. The Personal Insolvency Bill will assist personal or mortgage debtors. New proposals are:
A Debt Relief Certificate will allow people with no assets or no income with debts of less than €20,000 to be written off. These debts are likely to be credit card debt and personal loans. The Bill establishes an insolvency service which will administer debt relief options. In order to qualify borrowers must have a net monthly disposable income of €60 or less, assets of €400 or less, and must be resident in Ireland. Net disposable income includes salary or wages, welfare benefits such as job seekers allowance, income from pension, rental income and contributions from other household members. Certain debts are excluded including court fines, child support and spousal maintenance.
A Debt Settlement Agreement (DSA) will cover loans with two or more creditors in the amount of €20,000 or more. The borrower will have to pay off a certain amount for up to 5 years and the balance will then be written off. A Personal Insolvency Agreement (PIA) will apply specifically to mortgage holders for secured and unsecured debts of €20,000 to €3million. 65% of the lenders must be in agreement for some of the debt to be written down. A borrower could have the option of handing back their property and paying part of the balance in monthly instalments over 6 years and the remainder would then be written off. If the new measures are introduced borrowers will have to apply to insolvency agencies through companies such as the Money Advice and Budgeting Service (MABS). MABS may be the new State-run insolvency service to mediate between banks and borrowers.
Up to a quarter of all Irish mortgage debt could be written down under the new proposals.
Our Approach to Debt Management
At Lynch Solicitors we take the view that people over the last number of years have been putting the problem on the long finger. This is not in any way unexpected due to all the media and government hype to the effect that our financial woes are being addressed. It has become more than obvious that the present credit difficulties are here to stay for a considerable amount of time into the future.
All the strategies of postponing debt by deferring interest or capital payments are no longer a realistic approach. We have taken the view that it is now time to deal with debt management in the context of long-term debt with long-term solutions. With this in mind our strategy is twofold – firstly establish the amount of debt which you are capable of servicing and, secondly, put whatever strategies into place to deal with the balance which are realistic.
The Personal Insolvency Bill does not try to impose debt forgiveness. The overall aim is for the lender to focus on the borrower’s ability to repay the debt rather than on the negative equity in the property. Overall, the Bill should relieve some of the pressure borrowers are faced with.