When it may be better to be bankrupt
JOAN and Tom have a family home, but they have been struggling to meet the repayments on the mortgage for more than two years.
Tom's business collapsed with the housing downturn, and they are now in serious arrears.
They have been paying just €100 a month off the mortgage every month – much lower than the €1,400 they should be paying.
The bank wants them to voluntarily hand back the keys, and has even offered to pay a removals firm to get their belongings to a rental property.
Once the house is handed back to the bank, the couple is still likely to owe around €120,000 in residual mortgage debt.
The bank is not offering to write this off, and has also indicated it will veto a Debt Settlement Arrangement (DSA) under the new insolvency process – a five-year process that would see them paying back what they can with the rest of the borrowings written off.
If the couple vacate the house, they face the prospect of the bank obtaining a judgment against them.
Interest of 8pc a year accrues on unpaid judgments.
This means the debt will likely still be there when they reach retirement age.
So the couple's only real choice is to stay in their home, bankrupt themselves, and take their chances that the bankruptcy assignee may get a deal from the bank to allow them stay in the house.
Even if they lose the house in bankruptcy, the residual debt will be written off.