WITH about 86,000 homeowners now struggling to repay their mortgage, and four times more debtors seeking free legal advice than did in 2007, Ireland is in the midst of a personal debt crisis.
We need solutions, and we need them quickly. What could they be?
Write off mortgages
A homeowner who is battling to repay a massive mortgage should be allowed to write off some of their loan, according to Michael Dowling, spokesman for the Independent Mortgage Advisers' Federation. This should make their mortgage more affordable and prevent them from either having to sell their home at a lower price than they paid for it -- or having it repossessed.
"We need long-term solutions," said Dowling. "No one should be asked to leave their family home. But to make the debt-forgiveness solution palatable to other homeowners who are managing to repay their mortgage, a homeowner who has some of their debt written off should lose part of the ownership of their home. Their shareholding in the property might be reduced to 80 or 90 per cent, for example. Otherwise, people who can afford to repay their mortgage might say 'Well I may as well stop paying my mortgage and get my debt written off'."
After a bank writes off some of a householder's mortgage, the homeowner should be given an incentive to meet the repayments on their new mortgage. "The homeowner could win back some of the property portion they lost if they continue to meet their mortgage repayments as required over the next five or 10 years," said Dowling.
Cap mortgage repayments
With 441,000 people on the dole, many of those who took on mortgages during the boom years have either lost their jobs, or have a spouse or partner who is out of work.
Dowling believes that mortgage repayments should be limited to a portion of a borrower's current income. "If someone has lost their job -- or has taken out a mortgage with someone who is out of work -- the repayments should be capped to a percentage of their income," he says. "This will give them time to work themselves out of the difficulties they're in. Repayments could be capped by extending the term of the mortgage -- or allowing the borrower to repay only the interest on the loan."
Improve state support for struggling homeowners
If you are struggling to repay your mortgage, you may qualify for the mortgage interest supplement -- a state scheme designed to ensure that your income after paying the interest on your mortgage does not fall below a minimum level.
However, many of those struggling with mortgages are not able to claim the supplement because the income threshold for the scheme is too high, according to Paul Joyce, a senior policy researcher with the Free Legal Advice Centres who was also on the debt review group appointed by the then government last year.
"The mortgage interest supplement is still very restrictive," said Joyce. "The income threshold could be reduced."
Reform THE bankruptcy lawS
Most debtors are dragged through the courts by those seeking to get back the money they're owed.
Joyce believes that an out-of-court solution must be introduced for those struggling with debt. "Most debtors can't afford the huge cost of going to court," said Joyce. "A lot of these people don't engage with the courts as they are seriously intimidated by the legal system, don't have access to representation and feel the odds are stacked against them. But bankruptcy should still apply to high-end debt cases where assets have to be valued and so on."
One such out-of-court solution could be a debt-settlement arrangement, similar to a system in Britain known as an Individual Voluntary Arrangement (See below).
"The debt-settlement arrangement should be enacted as soon as possible," said Jim Stafford, managing partner of Dublin-based liquidator Friel Stafford. "This arrangement would be for debtors who 'can pay' at least some of their debt.
"Under the arrangement, the debtor and creditors would make a legally binding commitment in which the debtor would repay an agreed amount of personal debt to creditors over a period of up to five years. At the end of this period, the debt would be deemed to be repaid in full and the debtor would be able to make a 'fresh start' without having any damage to their personal credit rating."
Stafford said that debt-settlement arrangements would only be available to people who acted in good faith and were honest about the assets they own.
"If they do not, the arrangement would automatically end and the debtor could be prosecuted," said Stafford.
But some debtors need a more radical solution. Debt-relief orders, similar to those already in Britain, must be considered for people who have no income and no assets, according to Joyce.
"These orders may be needed for people in debt whose only source of income is social welfare," said Joyce.
With debt-relief orders, creditors are not able to chase a debtor for unpaid debts. If the debtor's financial circumstances have not improved a year after the order is issued, the debt is usually written off.
Sunday Indo Business