THE vast majority of people hoping to clear their debts through the new State-backed insolvency service can't even afford to pay the application fees, the Sunday Independent has learnt.
Personal insolvency practitioners (Pips) have claimed that most people hoping to apply to the service will have no hope of reaching debt settlements and bankruptcy is their only option.
The claims were made at an inaugural meeting of an newly formed association of Pips in Portlaoise a fortnight ago to discuss how the new insolvency service is working.
According to minutes of the meeting – seen by the Sunday Independent – Pips claimed that bankruptcy is the only option for many of the struggling debtors who have contacted them.
Application fees to the insolvency service range from €100 to €500, while Pip fees are believed to average about €5,000. "The vast majority of potential clients seem to have insufficient funds to pay either the Public Service Practitioner or the fees charged by the Insolvency Service," the minutes stated.
"There is a lot of fear of the unknown, risk of repossession and even imprisonment among the clients. Bankruptcy seems to be the only option for a lot of the clients and Pips should not hesitate to advise on this option."
The insolvency service was intended to give struggling families with unsustainable debts "a fair, transparent and equitable" way out of their financial difficulties, circumventing the more extreme option of bankruptcy.
However, the experiences of Pips will confirm fears that the State's debt relief process will do little to help the country's poorest families. According to the minutes of their inaugural meeting, the insolvency practitioners thought that "the whole process is too expensive for the clients who are already in financial difficulties and the majority of the cases do not seem to have a lot of chances in being passed by the banks".
The meeting heard that "a lot of the clients would be afraid to go into informal arrangements with banks, because of the unknown and because it is not necessarily a definitive ending to their problems, as banks can at any time change the terms of such an arrangement to their benefit".
While bankruptcy "sounds an attractive arrangement judging from the publicity created by media, including a recent case of Ivan Yeats [sic]", some Pips felt they didn't have enough knowledge to advise clients on this route.
According to the minutes, some Pips suggested that their fees and the insolvency service's fees should be waived altogether for debtors who were unable to afford them.
And while some Pips said they offered a free initial consultation, others disagreed with this approach because "clients do not put a value on the services they are getting for free and they might be creating a lot more work, thus wasting Pips' time".
David Hall, of the Irish Mortgage Holders Organisation, said: "What is being borne out here is that the insolvency service will not assist the people it was intended to assist.
"As a result of this flawed system, bankruptcy is going to be the norm."
He added: "There is clear evidence now that there needs to be a State-sponsored public service Pip to open entry to the service for those who cannot afford to pay fees."
The Insolvency Service has refused to reveal how many people have applied for debt settlement arrangements, or how many cases have been processed.
Tom Kennedy, chairman of the Association of Personal Insolvency Practitioners, said this weekend that the "real sense at the meeting" was that people should not be turned away because of fees.
"I think we'd like to make it accessible to more people. And if fees are a barrier to people getting access, we would like to be able to see how we can incorporate those who cannot pay," Mr Kennedy said.