Friday 20 October 2017

10,000 to have debt written off under new laws

Struggling homeowners will be able to avail of out-of-court debt settlement plans under the new bill
Struggling homeowners will be able to avail of out-of-court debt settlement plans under the new bill

Charlie Weston Personal Finance Editor

AROUND 10,000 people are expected to have their debts written off under new personal insolvency laws.

These are expected to avail of new out-of-court debt settlement arrangements under the laws, which are to be introduced before the end of the year.

But the Government has resisted calls from an Oireachtas Committee for an appeals procedure where banks act unreasonably.

Justice Minister Alan Shatter said the new legislation was a significant reform of the insolvency regime, which allows for more flexible ways of dealing with people with unsustainable debts and mortgages.

Under the new Personal Insolvency Bill, those who are declared bankrupt face the prospect of losing their homes.

They will also have severe restrictions placed on their finances for a three-year period.

The period of bankruptcy is being reduced to encourage the banks to sit down and work out deals with distressed mortgage-holders.

There will also be three options that will allow people to settle their bills outside the courts.

These deals will have to be rubber stamped by the Circuit Court for constitutional reasons.

Income

The new options include:

• A debt-relief notice. This is for debts (excluding taxes and fines) of up to €20,000. The full amount can be written off, but this only applies to those who have little or no income and no assets, such as their own home. It is expected this will mainly apply to unemployed.

• A debt-settlement arrangement. This is for unsecured debts (so it excludes mortgage debts) above €20,000. Consumers who avail of this would have a personal insolvency practitioner make a case to the lenders, and it must be approved by creditors, or lenders, who represent 65pc of the value of the loans.

• A personal insolvency arrangement (PIA). This is for unsecured debts, such as credit card loans, and mortgages. This would include the residential mortgage and buy-to-lets. PIA will cover debts up to €3m, and 65pc of the creditors voting to agree the deal must agree. A personal insolvency practitioner makes a case to the lenders.

The PIA is expected to apply to those who took out large residential mortgages, but whose income has collapsed. It it likely to be taken up by business people, particularly those with holiday homes and investor mortgages.

Those who avail of it will not necessarily have to give up ownership of the family home.

People will only have the option of doing one PIA in a lifetime, and it will only apply to those who are insolvent -- their income no longer allows them to cover their debts.

The Irish Banking Federation (IBF) complained yesterday that the Government had lowered the threshold for voting rights. Previously, creditors that control 75pc of the debts had to agree to any write-off proposal.

And IBF president John Reynolds questioned why a personal insolvency regime concerned with protecting the family home would cover amounts up to €3m.

Finance Minister Michael Noonan denied this meant banks had an effective veto on any debt write-down deals.

"They have a vote and not a veto," he said.

Campaigners on personal debt were concerned there will be no appeals mechanism if homeowners feel the bank is being unreasonable. Mr Shatter said those unhappy with the deal on offer had the option of declaring themselves bankrupt.

Some 10,000 people are expected to agree both debt-settlement arrangements and PIAs in the first year of its operation, according to Department of Justice officials. Around 3,000 people are expected to agree a debt-relief notice.

The proposed law was broadly welcomed by the Free Legal Advice Centres yesterday.

Irish Independent

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