Homeowners can write down mortgage debt in new bill but strict conditions
LONG-AWAITED reforms to ease the €12.4bn mortgage arrears crisis will allow some struggling homeowners to write down debt in a six-year breathing space, it has been revealed.
An initiative under new and complex bankruptcy and insolvency rules will let debtors and creditors strike case-by-case deals to ease financial burdens by spreading out repayments.
The revised laws, announced by Finance Minister Michael Noonan and Justice Minister Alan Shatter, aim to keep people in their homes and out of the courts.
"It provides an alternative mechanism to avoid a situation where you are in appalling financial circumstances and the only option is bankruptcy and that would lead to the loss of your home," Mr Shatter said.
Under a new bankruptcy regime, debtors will be allowed back in business in three years rather than the current 12.
The new Personal Insolvency Arrangement (PIA) will allow for a six-year arrangement between debtors and their creditors to spread out mortgage payments.
The amount of the mortgage would be written down and the payment plans restructured to extend the term, meaning monthly repayments would be further reduced.
The PIA applies only to debts between €20,000 and €3m.
But, the arrangement must be supported by at least 65pc of creditors and they would consider arrangements on a case-by-case basis.
"If you take the PIA, you're providing people with a window of a couple of years to get their finances back in order," said Mr Shatter.
"By the end of year six, they are in their homes, their unsecured debt has since been dealt with and they are now in a position where they can cope with what might arise in relation to secure debt."
Mr Noonan said the PIA was unique and innovative, as there has never been an similar precedent.
"We're breaking new legal ground here," he said.
The ministers also announced details of a new Debt Relief Certificate, which could result in a debtor having an unsecured loan written off completely.
The certificate applies when a borrower is unable to pay off debt up to the value of €20,000.
As part of the certificate, the debt would be frozen for a year, and if the debtor is still unable to pay after that period, the debt could be cleared.
A separate Debt Settlement Arrangement would apply to unsecured debts over the value of €20,000, and would involve a restructured payment plan spread over five years.
Tanaiste Eamon Gilmore welcomed the legislation and said it would help the Government ensure mortgage holders do not lose their homes.
"I would encourage people to talk to their banks about how they should best work through their debts as the emphasis of this legislation is on workable solutions that give people space and a realistic way of managing their debt," Mr Gilmore added.
Meanwhile, Sinn Fein spokesman for justice TD Jonathan O'Brien said the legislation was long overdue.
Details of the bill will go before the Oireachtas Joint Committee on March 1.
Mr O'Brien said Sinn Fein welcomes the fact that Government will be able to scrutinise it.
"It is absolutely essential that the timeframe indicated by the minister is held to," he went on. "We cannot continue to put off addressing the problems of those who cannot meet their mortgage commitments and are facing mountains of debt."
Meanwhile, David Hall, founder of New Beginning, an organisation set up to support mortgage holders struggling to pay their debts, said some finer points need to be addressed.
"While long overdue, the publication represents an important step in tacking this very pressing social and economic problem," said Mr Hall.
"As always the devil is in the detail. We have some concerns with the proposed legislation which we look forward to addressing with the Minister of Justice over the coming days and week."
According to the latest report from the Central Bank, the total number of households in mortgage arrears for 90 days or more is 62,970. The total balance of the debt stood at €12.4bn, with €1.07bn of mortgage repayments outstanding.