THOUSANDS of struggling families will be excluded from new state-backed debt deals because they cannot afford the charges.
It has emerged that the fees for engaging a professional adviser to put a debt deal together could be as high as €20,000 over the term of the arrangement.
The head of Insolvency Service of Ireland, Lorcan O'Connor, heralded it as a "game changer" for dealing with the country's huge personal debt crisis.
Up to 15,000 people had been expected to secure one of the three debt deals in the first year of the new service. But experts now say the numbers getting deals will be a fraction of that.
The head of the Free Legal Advice Centres (FLAC) group, Noeline Blackwell, said the new service could provide a badly-needed route out of debt for some people.
However, FLAC and other support groups for those who are heavily in debt said there were a range of problems with the new options, including:
* A chronic shortage of personal insolvency practitioners (PIPs), the new professionals approved to negotiate debt deals with banks on behalf of consumers.
* Huge resistance from banks to approving deals under the new insolvency service, because they will have to write off debt.
* The fact that anybody who gets, or even applies, for a deal will have their name and details put on a public register.
* Huge costs involved in engaging a PIP.
Wicklow-based PIP Eric Hendy said complex deals could see fees rise as high as €20,000 over the term of an arrangement.
This would typically be where there were a number of properties in joint names, or where a relationship had broken down. Arrears and personal guarantees would also be a feature of such a situation.
PIPs will have to: prepare a deal; negotiate with the banks; and handle payments that are agreed to go to the banks and other creditors over a five to seven-year term of an arrangement. Some PIPs are set to demand upfront fees, in case an insolvency application is rejected by banks.
The high level of charges would mean state insolvency deals would not be an option for ordinary families with just a family home, and no other major assets, experts warned.
"There are a number of concerns," Ms Blackwell said. "There is the potential for upfront fees to be charged by PIPs and the lack of access to a system of publicly funded practitioners for those debtors who cannot afford such fees."
She also said FLAC was worried about the lack of any appeals mechanism for debtors whose proposals were rejected, as well as the length of repayment arrangements. She said this meant large numbers of families could be excluded from the new state service.
David Hall, of the Irish Mortgage Holders Organisation, said thousands of householders with crisis-debt levels were due to be excluded from the insolvency service.
A survey of approved PIPs, carried out by the Irish Independent, indicated that fees of between €5,000 and €20,000 would be charged for engaging a PIP over the five to seven-year term of a debt deal.
This is far higher than originally expected when the legislation was put in place.
Mr Hall said high charges would mean anybody who did not have spare funds – or a large asset that could be sold – would be unable to engage a PIP.
Banks are supposed to cover the cost of practitioners, but consumers are unlikely to be able to engage a PIP if there is any doubt about paying the professional's fees.
Banks are to have a veto over debt deals. Mr Hall said financial institutions were actively trying to dissuade people from opting for the new service.
Meanwhile, it has emerged that there is set to be a huge shortage of PIPs.
Barrister Brian Walker, who trains practitioners, said up to half of those who took the courses and passed the exams had decided not to go ahead and become PIPs. Among the reasons given for turning their backs on the service was a fear of not getting paid by struggling households.
And PIPs who are financial advisers or accountants would be unable to act for their existing clients under strict guidelines put in place by the new service, Mr Walker warned. This was proving to be a huge stumbling block. There were also high costs involved in applying to become a PIP and demands that extensive professional indemnity insurance be taken out. This is why there are a mere 37 PIPs in 16 counties.
Finance Minister Michael Noonan defended the situation where there were so few insolvency practitioners: "This is the start and it will take time until it gears up to be fully operational."