Catch 22 of PIPs: they are useful only if you have cash
WHO pays the PIP (professional insolvency practitioner) is a question that has not been properly addressed with the opening of the new State Insolvency Service.
The problem with the new service is that it has effectively outsourced and privatised a key part of its work.
PIPs are set to sit down with heavily indebted consumers and work out what income they have. They will calculate the value of assets and then assess what can be paid back to creditors.
If the consumer is truly insolvent, then the PIP will draw up a proposal for the lenders. They will submit this to the banks and negotiate with the lenders.
So these practitioners will be doing most of the thorny work.
Doing this will be expensive, with a big risk of not being paid, especially if the banks reject the proposal. That is why many PIPs will want upfront payments.
If a debt deal is accepted by the banks, the PIP will handle all the payments.
Fees are likely to range from €5,000 to €20,000 over the life of a deal, with €10,000 likely to be a typical fee.
In cases where there are multiple properties, arrears and other debts owed to the likes of credit-card companies, fees will top €20,000 over the five to seven years of a deal.
So PIPS are only likely to sit down with someone they think will be able to pay them.
The fear of not being paid has meant that many professionals did the training courses but decided not to go ahead and get approval from the Insolvency Service.
The sheer costs involved may rule out thousands of ordinary families, with just the family home and no other major assets to offload, from getting state-approved debt deals.
Of course, the personal insolvency practitioners have to be paid.
But when you effectively outsource the work to those in the private sector, you create a situation where only those who can afford to pay will be able to avail of the new Insolvency Service.