New insolvency office faces flood of applications
Staff at State-backed service have already been contacted by up to 4,500 distressed borrowers
UP to 4,500 distressed borrowers have already contacted the the State-backed Insolvency Service of Ireland as it opens for business
Around 80 staff members will sift through the applications as the new service officially opens its doors to the public.
The scheme has been hailed as a second chance for distressed borrowers to escape lifelong insolvency and start anew.
After five years of recession, the Insolvency Service of Ireland (ISI) is preparing for a flood of applications into its new Dublin offices rented from airline Ryanair.
But there are already some concerns about how the new system will work.
Noeline Blackwell, the director general of Free Legal Advice Centres (Flac) said: "We think it has its place, and we welcome that it has been established but it is not a cure-all.
"It won't work for everyone but (for) people who are insolvent and incapable of working through their debt, it does have a place. We are glad that from tomorrow, at long last, this is in place along with the revised bankruptcy regime."
But she added that Flac, which offers basic free legal services, has reservations about the so-called creditor veto, which allows the largest creditors to simply decline an insolvency proposal under any grounds they see fit without any right of appeal by the distressed borrower.
Flac also has concerns that people who are insolvent won't be able to pay a Personal Insolvency Practitioner (PIP), the professional adviser responsible for leading people through the insolvency process.
"There are people who are insolvent who don't have a lot of additional income to pay their creditors, including the PIP. PIPs are professional people who must demand a payment for their services. They have to get their fee one way or another," she said.
"We would be worried that upfront fees might be demanded, which the insolvent person can't afford and as a result they will not enter the process," she added.
Ms Blackwell added that the legislation should have provided for those people who don't have the money to pay for a PIP, which could amount to hundreds of euro for a consultation and thousands of euro in preparatory fees.
ISI director Lorcan O'Connor insists that the new arrangements are designed to keep people in their homes.
But David Hall of the Irish Mortgage Holders' Association said his main worry was that the ISI would be under-utilised.
"Everyone wants the Insolvency Service of Ireland to work but what comfort could anyone have that the banks will engage with the insolvency service process in a meaningful, constructive way, judging from the way the banks conducted themselves at the Oireachtas hearings last week?" he asked.
Barrister Ross Maguire of New Beginnings, the advocacy group for distressed borrowers, is convinced the new service will work, but says it may take some time.
"Wherever it has been tried elsewhere, the UK, the US, it has worked well," Mr Maguire said.
"In Britain, one in every 400 people go through some sort of insolvency every year.
"In the USA, it's one in 200 people. In this country it is one in every 440,000, so you can see that in both Britain and the US, there is a working system. Now that we have the ISI in place, we are going to see a shift towards formal arrangements here but it will take time."
Meanwhile, it has emerged that the spouse of a bankrupt individual may need to buy their partner's share of the family home in order to remain in the property.
Chris Lehane, the State-appointed official in charge of the Insolvency Service of Ireland, told RTE last Friday: "When a person is made bankrupt the joint tenancy, to use the classic situation where a man is married and he has a spouse, is split and as official assignee, half the house vests [stays] in me."
He added that most of the family homes coming into bankruptcy would be in negative equity and that while individuals would be discharged from bankruptcy in three years, the half share of the home would continue to vest in the official assignee.
Mr Lehane explained that in a case where there was equity of €20,000 in the family home, he would ask the spouse to buy half of the equity from him to allow them to remain in their family home. He said that if that were not possible, he would go to the court to sell the family home, particularly in cases where there is a large equity that the spouse cannot afford.