The new insolvency legislation is about to go live. Whilst imperfect, it means that borrowers are going to have new, meaningful options available to them by September – to restructure debts that are suffocating them, and to get on with their lives.
Last Saturday, I ran a 'Debt Expo' in Bray – a public forum to help people get back in control of their mortgages, and to explain the new insolvency options. To my surprise, I emerged that evening into glorious Wicklow sunshine with a renewed sense of optimism.
Several themes emerged from the experts. First, don't wait any longer. If you know you've got a problem, get advice and act. Second, know the rules of the game. Read up on the Mortgage Arrears Resolution Process (MARP) and the insolvency options. When dealing with your bank, get everything in writing. Third, don't be afraid of bankruptcy. It's going to become common place, and is the most important threat available to force your bank to deal. If it's required, just remember you'll be debt-free in three years.
Here are answers to some of the specific questions raised on Saturday:
1. Our bank is refusing pointblank to restructure our mortgage, even though it's clearly unsustainable – what are we doing wrong?
Quite possibly nothing. Many banks still aren't doing any meaningful restructuring. It may be that they're waiting for the new insolvency legislation to kick in.
2. Okay, so where are we with the new legislation?
The bill was signed into law last December and the Insolvency Service of Ireland, ISI, was established in March. It now has a website (www.isi.gov.ie), a public information phone line (076 106 4200) and guides on the three types of insolvency available. Personal Insolvency Practitioners, Pips, are currently being trained.
The ISI is aiming to start individual cases in September. For unsecured debts under €20,000, they will start to issue Debt Relief Notices (DRNs). For larger debts they will begin issuing Protective Certificates. These will give your Personal Insolvency practitioner 70 days to find a restructuring of the debt that is acceptable to you and your lender.
Critically, in the next few weeks eh new bankruptcy regime will kick in. The bankruptcy period will be reduced from 12 to three years, making it a credible option and threat for the first time. If banks continue to refuse to restructure debts in a meaningful way, borrowers can now declare bankruptcy. In many cases, this would cost the banks far more than a negotiated settlement. As such, it is hoped that people's willingness to declare bankruptcy will force the banks to negotiate sensibly.
3. Sounds good, how do I start the process?
Debt Relief Notices will be administered by the Money Advice and Budgeting Service (Mabs). There are Mabs offices all over the country. They'll take it from there.
Debt Settlement Arrangements (DSAs), unsecured debt over €20,000, and Personal Insolvency Arrangements, PIAs, (secured debts, mainly mortgages) will be administered by Personal Insolvency Practitioners (Pips). Some will be local accountants and lawyers, and others will be in large financial firms like Grant Thornton. The ISI will provide a directory on its website. Unlike Mabs, these are for-profit operations, so may charge different amounts, and offer different levels of service – so shop around.
You should contact a Pip for advice as to whether or not you qualify for a DSA or PIA. If you do qualify, they will run the process for you. There is also a good chance that a solution will be found. In the UK, Grant Thornton handles more of these arrangements than anyone else, and has a 97 per cent success rate. The feeling is that we should see high success rates in Ireland in the coming years, as lenders, borrowers and Pips get used to the process and the types of solutions that work in different situations.
4. So how do I know if I qualify?
The key question here is whether or not you're insolvent. Technically, a person or business is insolvent if they cannot pay their debts as they fall due. The ISI's position is as follows: you've got to be able to provide you and your family with a 'reasonable standard of living', as defined on their website. If after paying for this, you cannot meet your debt repayments sustainably (think capital plus interest), then you're insolvent.
You've got to be in the Mortgage Arrears Resolution Process for at least six months to qualify for an insolvency arrangement. However, it might be worth contacting a Pip during the six months, or even before you go into arrears, to start getting organised. Pips can bypass the six months if they believe that MARP isn't going to work for you.
5. Do I keep my home in a Personal Insolvency Arrangement?
You should, yes. The legislation has been developed with the express intention of restructuring people's debts so that they keep their home and get their debts down to a sustainable level. If the house is particularly big, it may be necessary to downgrade, particularly if debts are being written down.
6. Why don't I just go to the UK and declare bankruptcy?
Maybe you should. It depends on your circumstances. If you go to the UK you'll be out of bankruptcy in one year or less, and can come back to the Republic debt free. If you stay here, you'll be in bankruptcy for three years. There are some technical differences, but the main issue is the inconvenience of having to move abroad for a year.
Bankruptcy will be unpleasant, but is now a realistic option. It shouldn't affect your job, and your standard of living for the three years may be the same as if you entered a DSA or PIA. At the end of the three years your debts will be written off (though you may end up paying some of your income to the bank for a few more years). Depending on the case, you may also get to keep your home. Even if the bank moves to repossess your house, it could take them up to two years to get you out.
So the bankruptcy option may be far more preferable to trying to service an unsustainable debt for the next thirty years, getting to retirement and realising you're broke.
7. Any final advice?
Don't ignore the problem. Don't ignore the letters. Don't ignore the phone calls. Make sure all communications are in writing.
Get expert advice – there's Mabs, financial advisers, solicitors, the ISI and groups like New Beginning. If possible, don't negotiate yourself, get representation.
Study up – the ISI's website provides pretty accessible materials.
If you're paying more than one-third of your net income servicing your debts, and that doesn't look likely to change any time soon, then your debts are unsustainable. Staying on interest-only is not a viable option. You have new options, so find out what they are, and use them.
Stephen Donnelly is an independent TD for Wicklow and East Carlow