Thursday 24 October 2019

Your Money: Could you be in line for big debt write-off - and at what cost?

Debt write-offs aren't easily won but if you secure one you'll get a fresh start, writes Louise McBride

'You don't need a multi-million debt to secure a write-off - people with much smaller debts may be entitled to have some or all of their debt written off'
'You don't need a multi-million debt to secure a write-off - people with much smaller debts may be entitled to have some or all of their debt written off'

Musical director Frank McNamara and his barrister wife Theresa Lowe will soon find out if a court will sign off on a proposed debt deal which will see about €3m of the couple's debt written off. A High Court judge indicated last month that he was willing to approve the deal - but that a number of points around the case needed to be clarified first. The matter is due to return to the court this month.

In recent years, a number of other Irish individuals have secured debt write-offs running into the millions. Many of these have been struck under the Insolvency Service of Ireland (ISI), the State body set up more than six years ago to help individuals resolve debt problems.

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So if you're struggling with debt - or in danger of doing so - could you too get a debt write off?

Chances of a write-off

You don't need a multi-million debt to secure a write-off - people with much smaller debts may be entitled to have some or all of their debt written off. "You can start exploring the option of a debt write-off once you are unable to meet the repayments on debt as they become due - after allowing for reasonable living expenses and once there's no likelihood in the short-term of your [financial] circumstances improving so that you could meet your debt repayments," said Michael Laffey, the regional manager with North Leinster's Money Advice and Budgeting Service (MABS).

For a debt write-off to be an option, you must have been struggling with debt for a while - you can't seek a debt write off if you've only missed a month's repayment on a mortgage, for example.

Ironically, you may find it easier to get a multi-million euro debt written off than a debt running into the tens of thousands. "The same principles apply [when an individual is seeking a debt write-off] but when you are dealing with multi-million euro debt, you are dealing with more senior level bankers who have decision-making authority," said Jim Stafford, partner with the debt advisers, Friel Stafford. "However if you have debt of €50,000 or €60,000, this is usually dealt with by a junior bank manager - and junior bank managers tend not to write off debt as they don't have the authority to make that decision. Also, there's always the possibility that someone with a €50,000 or €60,000 debt may get a promotion or an inheritance - which can help to clear the debt."

Getting a write-off

There are four ways a debt can be formally written off: through a debt relief notice (DRN), a debt settlement arrangement (DSA), a personal insolvency arrangement (PIA) or bankruptcy. You must explore whether a DRN, DSA or PIA is an option before seeking bankruptcy. An informal debt deal can also be explored.

A debt write-off is not easily won and you will only get one if you are genuinely struggling with debt and have no chance of paying back what you owe. "One of the things which has happened over the last 10 years is that banks and vulture funds have become much more forensic when it comes to debt write-offs," said Stafford. "So anyone looking for a debt write-off will be forensically examined in detail. This means banks and vulture funds will be looking for your tax returns, bank statements, payslips, bank statements and so on. If you're self-employed, you'll be asked for your company accounts, bank statements and so on. You have to show you have no capacity to repay the debt and that you have no unencumbered assets (assets which you don't owe any money on)."

A creditor or bank can reject a proposed debt deal - so your ability to secure a debt write-off will often come down to the creditor you are dealing with. "Banks are very slow to write off debt, whereas vulture funds are usually more pragmatic," said Stafford. "Banks are in the lending business and a bank is likely to be around for the next 10 to 15 years or more. Many vulture funds have a life span of five years, so they would not be interested in a debt deal where you repay €100 a week or month over the next 10 years, whereas a bank might be."

A recent change to personal insolvency legislation could make it easier for you to hold onto your own home - or get some debt written off - when seeking a PIA. Under the amended legislation, if a bank or creditor vetoes a proposed PIA, a court can still approve the PIA. A debt adviser could, for example, argue in court that a creditor would fare better under a PIA than it would under a bankruptcy, and should a judge accept that argument he can order that the PIA be put in place."This was the most critical piece of amending legislation ever passed in this country in terms of debt write-offs," said Stafford.

The amount of money you need behind you to hire a debt adviser will depend on the type of debt deal you're seeking. For example, with DRNs, you must deal with an approved intermediary (a qualified debt adviser who is appointed by the ISI to deal with DRNs). An approved intermediary cannot charge for his advice."You don't have to go to court to get a DRN," said Laffey. "Instead, you go to an approved intermediary and he applies for the DRN on your behalf. There's no charge for a DRN."

You must go through a Personal Insolvency Practitioner (PIP, another type of debt adviser) for a DSA or PIA. You may have to pay an initial consultation fee to a PIP but after that, any PIP fees should be built into the repayment plan agreed under the DSA or PIA. Should it emerge however that a debt deal cannot be struck, you are likely to have to cover the PIPs fees separately yourself. PIP fees can run into the thousands, so be sure to understand the fees you're facing.

"There are a number of PIPs who do initial consultations free of charge so shop around," said Laffey. "You may be able to get vouchers under the Abhaile scheme to cover the cost of going to a PIP for a PIA." Abhaile is a State scheme which provides support to those in mortgage arrears.


It is hard, but not impossible, to borrow money again after getting a debt write-off. This is because a record of your credit history - information about any loans you have and any difficulties you had repaying those loans - is usually kept for five years. Lenders will check your credit record before offering you a loan and are likely to turn you down if that history is bad.

However, if you succeed in resolving your debt problems after securing a write-off, your poor credit rating (an estimate of your ability to repay a loan) will in time be repaired. So you are likely to have a better chance of borrowing money in the future than you would have had you never addressed your debt problem. "Due to the level of debt arrears in this country, the banks would struggle to grow their loan book if they were to take a position where they wouldn't lend to anyone who has had debt written off, particularly where the person has addressed their debt," said Laffey.

One of the disadvantages of getting debt written off as part of a formal deal is that your name is published on a public register. However, with a DRN, DSA and PIA, once the debt arrangement comes to an end, your name - and all information recorded on the register about the debt deal - will in time be removed from the register. With bankruptcy however, there is a public record of all bankruptcies, including those which have been discharged.

For those struggling with mortgage arrears, one of the main advantages of a PIA is that there is a better chance of holding onto the family home. This is different to a bankruptcy. You could lose your family home if you are declared bankrupt, although this doesn't always happen.

There are serious consequences to not dealing with debt, including the risk of losing your home (if you've fallen behind on your mortgage), the risk of eviction (if you've fallen behind on rent) and the risk of disconnection (if you've fallen behind on gas or electricity bills). With unsecured debts, a bank or creditor can go to court to get a judgment that you owe debt and then use that to get an instalment order from the courts, where you are ordered to repay the debt. "An instalment order is a court order so you're in trouble if you don't comply with it," said Laffey. "You could be found in contempt of court."

Failure to address debt woes can also lead to relationship and health problems. So no matter how bad your debts, don't bury your head in the sand. The earlier you address debt the better.

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