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How a payment plan could help a couple through a financial mess

SEAN and Mary had a thriving business up to recently but they are now in a financial mess.

The couple borrowed €300,000 to buy their home, but it is now worth just €200,000. They also owe €50,000 in other loans.

Borrowing €250,000 for a buy-to-let property seemed like a good idea but it is now worth €150,000.

The business has collapsed and the banks won't budge on doing a deal.

So Mary heads off to a personal insolvency trustee. A debt relief certificate is not suitable, as the couple has assets and a small income.

They do not want to declare themselves bankrupt as this is so punitive.

The trustee is satisfied they cannot meet their debts and there is no prospect of their finances improving in the next few years.

A standard financial statement is filled out and sent to the banks and other creditors.

A payment plan is put together by the trustee.

It is proposed that just €20,000 is paid to the unsecured creditors -- credit card providers, credit union etc -- over a six-year period. This is 40pc of the overall unsecured debts owed.

The amount owed on the family home is written down to €250,000, and the term of the mortgage is now 30 years and not 25 as it was previously. The repayments are lowered to reflect this.

The loss-making buy-to-let is sold for €150,000, with this cash given to the lender who financed it.

The balance of €100,000 still owed on the buy-to-let mortgage is written down to €40,000, according to an example provided by the Department of Justice.

Creditors will have to vote on the deal. Mortgage lenders will have the biggest say.

If they keep to the deal, all their unsecured debts, and the shortfall from the sale of the buy-to-let, will be wiped out after six years.

They will have to keep paying the mortgage on the family home, but with lower monthly repayments as some of the principal has been written off.

Irish Independent