| 6.9°C Dublin

Banks lose millions as insolvency deals vetoed

Close

Property tax deadline has been extended until Friday

Property tax deadline has been extended until Friday

Property tax deadline has been extended until Friday

BANKS have lost millions of euro due to a reluctance to agree personal insolvency deals for stricken householders.

A new study of 25 bankruptcy cases shows that more than seven banks lost €5m by vetoing insolvency deals.

The over-indebted homeowners in each of the cases were forced to go bankrupt when the banks rejected insolvency deals as part of the State's new Insolvency Service.

All of the homeowners have surrendered their homes.

Personal Insolvency Practitioner Mitchell O'Brien, who conducted the study, accused banks of an "irrational dislike" of the Insolvency Service that was costing them millions of euro.

Banks would have recovered more money by agreeing to Personal Insolvency Arrangements with the over-borrowed householders, he said.

But in each case a five to seven-year insolvency deal was vetoed by the banks.

"The banks don't like the idea of having PIAs (Personal Insolvency Arrangements) being forced on them and they are prepared to cost themselves millions of euro to avoid them," Mr O'Brien said.

A detailed analysis of the 25 bankruptcy cases shows that banks including Bank of Ireland, KBC Bank, Ulster Bank, AIB/EBS, Bank of Scotland and Permanent TSB saw €4.8m written off in mortgage debts when their customers were declared bankrupt.

This was out of a total mortgage debt of €7m, according to the figures from Mr O'Brien, of the Insolvency Resolution Service. The company is a joint venture between Mr O'Brien and credit information publication 'Stubbs Gazette'.

The analysis found that the banks realised just 32pc of the mortgage debt after the bankruptcies.

"We have definite evidence that creditors are declining to enter into PIAs in spite of the fact that bankruptcy is leaving them far worse off," he said.

Stricken

Mr O'Brien added that banks were probably unaware of just how much they were losing for their shareholders by blocking insolvency deals, as his analysis was the first of its kind.

Bank of Ireland boss Richie Boucher is on record saying his bank does not write off secured debt, effectively shutting off PIAs for the bank's stricken borrowers.

Under a PIA, an arrangement is reached on mortgages and unsecured debts, such as car loans, to pay what the borrower can afford over a five to seven-year period.

A PIA is brokered by a Personal Insolvency Practitioner (PIP) outside the courts, and agreed at a creditors' meeting. But banks have a veto.

The Insolvency Service administers the deals, but they have to be approved by a judge in the circuit court.

The service, heralded as a solution for the crisis of massive household indebtedness, has been mired in controversy since it was launched this time last year.

The most recent figures show that just 27 PIAs were approved in the April to June period this year.

Numerous groups have called for a removal of the banks' veto on insolvency deals. The cost of using the service has also been an issue.

Irish Independent