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Sunday 31 August 2014

Families freed from huge debts in just three months

Charlie Weston Personal Finance Editor

Published 04/06/2014 | 02:30

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Mortgages that are not viable today will be soon.

FAMILIES with massive debts are benefiting from a new trend for fast-exit insolvency deals.

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These are arrangements where banks and other lenders sign up to release overstretched borrowers from an insolvency deal in just three months.

This is instead of five years as originally envisaged for the arrangements administered by the Insolvency Service of Ireland.

A small number of these fast-track insolvency deals have already been put in place, completed and approved by the courts, the Irish Independent has learned.

But finance experts said they were ready to roll out hundreds of them, as they were favoured by banks because they are cheaper than a five to six-year personal insolvency deal.

Waterford-based personal insolvency practitioner (PIP) Mitchell O'Brien said he had already helped three families exit personal insolvency arrangements (PIAs) in just 90 days.

PIAs were designed to last up to five years, but can be extended to last six years.

A PIA is designed to deal with mortgage and other debts, such as car loans and credit union borrowings.

Mr O'Brien said there was nothing in the insolvency legislation on the minimum amount of time a PIA could take. In the three cases he has had court approval for, amounts in excess of €100,000 were written off the mortgage debts, while most of the other borrowings were wiped out.

A lump-sum contribution of just €100 was made in each of the cases.

And Michael Bolger of insolvency firm Grant Thornton said his company has 35 fast-track insolvency deals in train.

He said that banks that held the mortgage debt were agreeing to the quick-turnaround PIA deals, especially if the borrowers could tap family and friends to make a 'bullet' payment as part of the arrangement.

Banks have a veto on insolvency deals, especially if they hold the mortgage debt.

And if the bank got possession of a buy-to-let or even a family home, they were particularly anxious to agree a quick PIA.

This is because of lower PIP fees and a better chance of protecting mortgage debt. Banks were aware that in an arrangement that is to run over five years there is a high probability of the deal breaking down.

Mr O'Brien, who is in a joint venture with credit monitoring body Stubbs Gazette, denied that banks were happy to do a quick PIA as it meant the mortgage debt was secured when other lenders such as credit unions lost out.

"Banks are saying if there is no capacity to make payments, then why pay a PIP for five years? It is better to have the issue dealt with upfront," he explained.

He said all banks were open to the idea of fast-turnaround PIAs, including Bank of Ireland, which has insisted it does not do mortgage writedowns.

Mr O'Brien said accelerated PIAs were a better deal than bankruptcy. In a bankruptcy banks get little or nothing, while homeowners risk losing their homes.

A typical accelerated PIA sees all of the unsecured debt written off. An assessment was made on what monthly repayments could made on the mortgage. Some of the mortgage debt was then written off, with part of the rest put into a split mortgage arrangement.

"The accelerated PIA is the way forward. It will give homeowners a better deal, and reduce PIP fees by 60pc, as a PIP will not have to review the deal year after year, and receive all the payments on behalf of the banks."

He said families that took one of these new deals would get a fresh start much quicker, and would not be restricted to the limited living expenses as part of a five-year PIA.

PIPs could make money if there was a high volume of these deals, Mr O'Brien said.

Irish Independent

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