A FAMILY with massive borrowings has become the first in the country to get mortgage and other debts written off under a new personal insolvency regime.
The Leinster-based family, whose self-employed income collapsed due to the downturn, was seeking a deal on overall debts of €600,000.
A majority of the seven lenders they owed money to yesterday agreed to a personal insolvency arrangement (PIA) which will see a large chunk of the debt written off at the end of the six years of the deal, the Irish Independent has learnt.
It is the first PIA to be formally passed by creditors and is expected to be followed by thousands of others.
A number of debt settlement arrangements (DSAs) – deals that do not include mortgage debts – have already been completed.
The PIA will have be formally signed off by Trim Circuit Court, but this is set to be a formality as the creditors have sanctioned it. The details will then be posted on the website of the Insolvency Service of Ireland.
The agreement at the creditors' meeting does not cover the family home, but the family's two buy-to-let properties are part of the deal.
It is understood the family are able to cover the mortgage on their family home, but were unable to meet the repayments on the two investor mortgages and a string of other loans.
Dungarvan-based personal insolvency practitioner (PIP) Mitchell O'Brien of Insolvency Resolution Service, who acted for the family, said the banks had agreed to allow the buy-to-lets to be retained.
This is because there is an income from them and it was not thought a good idea to sell them at this time.
The family, which includes children, has 12 debts owed to seven different lenders.
It is thought that most of the unsecured debt – typically credit union lending, car loans and credit card debt – was written off.
The repayments for the family home mortgage will continue as normal, but the repayments on the buy-to-let mortgages will now be based on what the family can afford to pay.
It is expected that in most PIAs, mortgage debts will be written down, with much of the negative equity written off.
So if a family that borrowed €300,000 cannot now meet the repayments, and their home is now worth half of this amount, the likelihood is that the mortgage will be reduced to €150,000
Mr O'Brien would not say how much of the buy-to-let mortgage debt was written off but he indicated that most of the unsecured loans will be wiped if the family sticks to the six-year agreement.
He said he charged €5,000, plus VAT of 23pc, for the deal. Just €150 of this was paid upfront, with the main lenders ending up covering the rest of the PIP's costs.
In a bankruptcy situation the banks would have got nothing, he said.
Head of the Insolvency Service of Ireland Lorcan O'Connor welcomed the conclusion of the first PIA.
"I expect there will now be significant numbers of PIAs and DSAs closing this year."
He defended the length of time it has taken for the first PIA to be agreed, especially as insolvency service is a complex new operation. The legislation setting up the insolvency service was passed into law more than a year ago.
Charlie Weston Personal Finance Editor