No sign of light for the ordinary Joe shackled by mortgage debt
Published 02/02/2014 | 02:30
AS each day passes, the flaws in the new personal insolvency process become more obvious.
The system, under the auspices of the Insolvency Service of Ireland, was supposed to be a panacea for the personal debt problems of ordinary people.
Bust borrowers desperately need to be released from their debt slavery if they are again to make an economic contribution to society. Massive household indebtedness is a persistent drag on the economy.
Close to 100,000 residential mortgage accounts are in arrears, with families in trouble as their home loan labours under multiple other debts.
The idea was to get these people to a situation where they could make lower loan repayments based on what they can now manage, allowing for reasonable living expenses. There was never any plan to benefit those who can repay their debts, or to wipe out negative equity.
Five years after the financial crisis hobbled households, the Personal Insolvency Act 2012 was passed into law in December 2013. The new Insolvency Service of Ireland finally came into being last April.
Thousands of ordinary people drowning in debt hoped it would offer them an escape route back to financial normality.
But it is not working out like that.
The first personal insolvency arrangement (PIA) was formally passed by creditors in recent days. It has taken a while. But strangely with this deal, the mortgage debt was for two buy-to-lets and did not include the mortgage on the home.
That pretty much sums up what is wrong.
But we beg to differ.
Under the new regime the time taken to exit bankruptcy will fall from 12 years to three. That is still too long and compares unfavourably with a year to exit bankruptcy a few miles up the road in the North.
And the new insolvency deals — PIAs and debt settlement arrangements (DSAs) in particular — are too complex, too costly and cumbersome.
Little wonder that the six new circuit court judges appointed to deal with an anticipated flurry of PIAs and DSAs have found themselves with little to do.
Personal Insolvency Practitioners report that nine out of 10 people contacting them about a PIA or a DSA have to be told that they are not suitable candidates.
That is because they have nothing to bring to the table — no buy-to-let that can be sold, or a high income to fund the debt workout.
The bottom line here is instead of the predicted thousands of formal insolvency deals being put together this year to end debt misery, expect no more than a few hundred now that the new system is up and running.
A bailout for ordinary Sean and Marys it is not.