Homeowners get lifeline as personal debt deal on table
THOUSANDS of homeowners who can pay their mortgages but are overwhelmed by other debts may be able to get a deal to get some of what they owe wiped away.
These people unable to meet repayments on personal debts like credit card loans and car borrowings will have new options for settling debts without having to go to court and declare bankruptcy.
But the banks and others who are owed the money will have to consent to the debt writedown.
Justice Minister Alan Shatter and Finance Minister Michael Noonan set a range of new processes for over-indebted consumers, but how the deals work will be left largely to the banks.
Each case will be dealt with separately.
And the new Personal Insolvency Bill will also reduce the period for the automatic discharge from bankruptcy from 12 years to three, if strict conditions are met.
The reform of Ireland's bankruptcy laws was a condition of the EU/IMF bailout agreement and the three-year discharge period is in line with recommendations made by the Law Reform Commission in 2010.
There will now be a range of debt settlement processes where people can avoid using a court.
- Consumers drowning in debt but who have no income and no house or other assets could be in line for debt forgiveness.
This would not apply to mortgage debt, and only apply to amounts under €20,000.
Consumers would apply to a new state agency, to be called the Insolvency Service, for a debt relief certificate.
If granted, a one-year moratorium period will apply during which creditors cannot pursue action against the debtor for the debts covered by the deal.
At the end of the moratorium the applicant is discharged from the debts.
- For those who owe more than €20,000 -- excluding mortgages -- there will be an option called a debt settlement arrangement.
This will cover the likes of overdrafts, credit card bills and credit union loans.
It will apply to both those who rent and to those who own a home. A regulated trustee would come up with a payment plan where the consumer would pay what they could manage over five years.
After the five-year period, the debts would be discharged.
But the banks would be required to approve this debt settlement agreement.
- Householders unable to repay mortgage debt will be able to get some of it written off without having to declare themselves bankrupt in a court if they meet certain conditions.
But the banks will have to agree to any deal, as revealed by the Irish Independent two weeks ago. People may be able to stay in their homes if they can get agreement from the banks to a debt settlement deal.
Ireland will be the only country in the world to have processes for debt deals on mortgages which operate outside of the courts, Mr Shatter and Mr Noonan said.
Mr Shatter estimated that up to 10,000 people were likely to benefit from the new non-court debt write-down deals.
But Paul Joyce of the Free Legal Advice Centre (FLAC) warned that thousands of people with borrowings they would never be able to repay would still lose their homes as banks would be able to veto any deal.
The Irish Banking Federation gave a lukewarm response to the proposed legislative changes.