Tuesday 15 October 2019

Your Money: Four ways to escape debt trap

How to navigate the system if you are struggling to cope with finances

Erasing debt
Erasing debt
Sinead Ryan

Sinead Ryan

It might be an extreme example, but news has emerged of a case where a Limerick couple had almost €3m of debt written off for just a €2,000 payment in a personal insolvency arrangement (PIA).

The money was owed for business and personal loans including a mortgage.

They had no hope of paying it although the woman's family stepped into pay some other debts which got some creditors off their back.

Crucially, the family home, valued at €450,000 was retained, so children can stay in school and the family can continue their lives, albeit under a financial cosh for a number of years where their living expenses must be approved.

The bank involved in the mortgage arrears must accept the position, even if they argued against it.

PIAs are one of the four remedies available to debtors under the Insolvency regime, and were up 31pc in 2018 over the previous year.

Eight thousand people have been helped with formal debt arrangements, and a further 120,000 with 'interventions'.

It surprises most people to learn that, like this family, in 95pc of cases the home is not repossessed and the family gets to stay put with all the importance that bestows on children, neighbours and wider community.

The people most likely to lose their home through repossession are those who ignore banks' letters, don't turn up at court hearings or believe, maybe genuinely, that nothing can be done for them. This is rarely the case.

This week, I'm looking at the debt arrangements available and how to learn more about the system if you are in debt. The four solutions are:

Debt Relief Notice

If you have a low income, few assets and debts of less than €35,000 that you can't repay, a DRN could be the right solution. It is not suitable for those who have a mortgage, but debts from the credit union or gas company etc would qualify.

Debt Settlement Arrangement

If you have higher unsecured debt such as credit cards, loans and overdrafts, a DSA could be the right choice for you. Again, it's not used for mortgage arrears.

Personal Insolvency Arrangement

A PIA is for people who have secured debts, such as mortgages or business loans held against property.

There are lots of types of arrangement but typically they can involve debt write down, warehousing a portion of the mortgage, say until a pension comes in, extending the mortgage term or lowering the interest payable. They can also involve Mortgage-to-Rent, whereby you hand over the ownership of your house, but get to stay in it, as a tenant of a housing charity.


This is a polarised solution whereby your property and possessions are transferred to an Official Assignee who arranges for the sale of items and distributes money to your creditors.

Generally, it's the last option, never the first.

How to get started

Make contact with ISI, the insolvency service (isi.gov.ie, 076 1064200) or see the excellent backontrack.ie website which explains the process.

An appointment is made with a Personal Insolvency Practitioner (PIP) who will go through your whole situation and decide how to proceed.

Immediately, all the phone calls, letters and hassle from creditors will stop and most people report the sheer relief of this alone is worth the call.

The PIP will charge an initial consultation fee, however, further fees are built in to any arrangement made under strict rules, and if you have mortgage arrears, you should qualify for a free consultation under the 'Abhaile' scheme run by MABS (keepingyourhome.ie or mabs.ie)

Irish Independent

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