Personal Finance

Thursday 24 July 2014

Can I get part of debts written off under new laws?

Published 16/03/2014|02:30

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Michael Keenan

QI have run into trouble with debt because I've lost my job. My home is worth €150,000 but its loan is €290,000. I also have credit card bills. I'm single, in my early thirties and confident of getting a new job. Can I get part of my debts written off now using the new personal insolvency rules?

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Derek, Coolock, Dublin 5

AIf your difficulty in meeting repayments is temporary, the new personal insolvency rules do not apply and you won't get any debt write-off. If you can demonstrate to your bank and other creditors that your new job will enable you to repay your debts in full, they will almost certainly agree an interim solution with you.

If the pay in your new job results in a small shortfall in your debt repayments, you should negotiate your position with your lender under the Mortgage Arrears Resolution Process (MARP). Examples of possible solutions might include arranging an extended loan term, a split mortgage, change in interest rate and so on. You will need to negotiate separately with your credit card companies.

If your new pay is only enough to meet a small part of your debt repayments, you should firstly liaise with your bank under MARP. However, you will probably need to get help from a Personal Insolvency Practitioner (PIP). The PIP will seek to negotiate a solution for you under the new personal insolvency rules and his/her fees will normally be covered from your debt repayments.

In order for a PIP to achieve any partial debt write-off under one of the new insolvency arrange-ments, your net income will have to be enough to cover both your living expenses and some repayments. You may also need to bring a lump sum to the table, such as money from family or from the sale of an asset.

Reduction of your home loan debt will not be automatic and bear in mind that the home loan debt will rarely be reduced below the value you'll get from the sale of your home (€150,000 in your case), because the bank could eventually achieve that value by selling your house.

An insolvency arrange-ment will normally involve a significant write-off of your credit card debts. If an insolvency arrangement isn't a workable solution for your financial problems, you may have to consider bankruptcy.

By the way, if you have spare money now (such as redundancy or savings), you might be tempted to pay off part of your smaller unsecured debts, like your credit card debts. I recommend that you get advice from a PIP before making any such payments as insolvent persons need to exercise care in how they use their limited resources.

QI am separated and will have to declare myself bankrupt shortly. What bankruptcy costs will I face?

Tom, Blackrock, Co Dublin

APrior to seeking bankruptcy, you may need advice on the family home, joint debts, and the bankruptcy impact on your spouse. You must also check if there is a better alternative to bank-ruptcy; the High Court judge will ask about this.

The various bankruptcy petition documents can be prepared by you and you can also represent yourself in court. Alternatively, you can ask your PIP or solicitor to assist with certain aspects – get a quote in advance for the specific help you want.

Costs, such as stamp duty and so on, which are payable to the State will be just over €900 – or double that amount if your spouse is also declared bankrupt.

Michael Keenan is a Personal Insolvency Practitioner and a partner in RSM Farrell Grant Sparks

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