Wednesday 16 October 2019

Rise of debt write-offs: How hundreds are seeking deals as they battle to save their homes

  • Experts say a confluence of factors has led to a situation where applications for PIAs have become common
  • Last year 959 PIAs were processed, up from 733 in 2017, and those working in the area believe the figure will increase substantially again this year
Ronan Ryan and Pamela Flood. Photo: Gerry Mooney
Ronan Ryan and Pamela Flood. Photo: Gerry Mooney
Shane Phelan

Shane Phelan

At first glance, restaurateur Ronan Ryan's decision to do a U-turn on a deal to surrender his family home to a vulture fund looked like an audacious move. Instead of handing over the keys as promised, proposals were put forward that would see him and his wife, former Miss Ireland Pamela Flood, keep their Dublin home.

Not only that, under the plan - known as a personal insolvency arrangement (PIA) - he would also see €634,000 of his €1.6m debt written off.

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As part of the suggested arrangement, Mr Ryan (49) has pledged to repay the remaining debt of close to €1m over the next 22 years.

The proposal has been resisted by Tanager, an Irish affiliate of giant US vulture fund Apollo, which bought Mr Ryan's non-performing home loan from Bank of Scotland (Ireland) in 2014.

However, should Mr Ryan get a favourable High Court ruling next month in his legal battle to temporarily stave off Tanager's repossession of the Clontarf property, there is every chance he can also secure judicial approval for the debt deal.

While it may appear to be a bold move on the part of the former owner of Town Bar and Grill, Mr Ryan is just one of a growing number of people availing of relatively recent personal insolvency legislation in a bid to save their homes.

The home of Ronan Ryan and Pamela Flood in Clontarf
The home of Ronan Ryan and Pamela Flood in Clontarf

Experts say a confluence of factors has led to a situation where applications for PIAs have become common.

More pressure from creditors, the availability of free financial and legal advice under he Abhaile scheme for people in danger of losing their homes, and a growing awareness of options open to debtors, as a result of publicity surrounding high-profile cases and advertising by the Insolvency Service of Ireland (ISI), are fuelling the phenomenon.

Another celebrity couple to have trodden this path in recent times are musical director Frank McNamara and his wife Theresa Lowe, a barrister and former RTÉ presenter.

Their proposed arrangement was also opposed by Tanager, but in August a High Court judge said he was willing to approve a debt write-off of around €3m for them. Under the PIAs put forward in their case, they would keep their family home in Dunshaughlin, Co Meath, and pay off the remaining debt over 19 years.

In both cases, the debtors are availing of laws enacted six years ago to deal with the mortgage arrears crisis - and they are not the only ones.

"For every Frank McNamara or Ronan Ryan there are 100 regular Joes that are doing exactly the same thing," one lawyer specialising in personal insolvency told the Irish Independent.

Prior to the introduction of the Personal Insolvency Act in 2013, bankruptcy was the only real formal option for insolvent people to settle their debts and get protection from creditors.

The Act introduced a debt relief notice (DRN), allowing for the write-off of debt up to €35,000, and a debt settlement arrangement (DSA) covering the agreed settlement of unsecured debts, which are debts not backed by an underlying asset such as a house.

The McNamaras and Mr Ryan are seeking to avail of a third mechanism introduced by the act, the PIA. This allows for the agreed settlement of a secured debt, a debt backed by an asset, up to €3m, and an unsecured debt with no limit.

The PIA is designed to return debtors to solvency while also keeping them in their home in the vast majority of cases.

PIA proposals must be made through a personal insolvency practitioner, or PIP, authorised by the ISI. If the PIP believes the person qualifies for a PIA, a protective certificate can be obtained, providing the debtor with 70 days' breathing space during which an arrangement proposal can be drawn up.

Last year 959 PIAs were processed, up from 733 in 2017, and those working in the area believe the figure will increase substantially again this year.

Dungarvan-based PIP Mitchell O'Brien said recent publicity was undoubtedly having an impact on the number of debtors seeking advice on such arrangements.

However, in his view "most of the uptake from debtors at the moment" is prompted by repossession proceedings.

"Every month for the past 48 months we have seen an increase in volume. We are increasing our capacity here by about 50pc a year," he said.

Originally, proposed arrangements could be shot down if not enough creditors were in agreement. But since December 2015 it has been possible to appeal this veto in the courts.

Mr O'Brien said there were now 650 pages of written High Court judgments on such appeals, meaning the law had become increasingly settled.

"Because of this the PIP is now better able to project at the initial consultation with the debtor what the ultimate outcome will be," he said.

According to Eugene McDarby, chairman of the Association of Personal Insolvency Practitioners, a key factor driving debtors to seek PIAs is that the main banks are under pressure from the European Central Bank to get bad loans off their books.

This has resulted in banks refusing to give any more forebearance to struggling debtors - or simply selling off the loans to vulture funds.

Such is the volume of bad loans being sold off, Mr McDarby said that in two years' time it was unlikely PIPs would be dealing with any of the main banks anymore.

"I think it will be vulture fund debt we will be dealing with," he said, but added that some of the funds were "extremely flexible" in doing deals compared to the banks.

In recent cases where PIAs were approved by the High Court, a significant factor was that creditors would receive more from the arrangement than if the debtor was forced into bankruptcy.

"Really these things all come down to maths," said Mr McDarby. He said creditors tended to accept PIAs if the return would be better than bankruptcy, unless they had a problem with the terms.

"It might not suit their policy," he said. "Effectively, though, a court can force it upon them at that point through the appeals process." In Mr McDarby's experience, around 75pc of PIAs are being accepted by creditors and most that aren't are appealed.

Another interesting aspect of recent court decisions is that a debtor's advancing age does not necessarily militate against their PIA being approved.

In the case of Mr McNamara and Ms Lowe a judge dismissed objections by Tanager that they would be 78 and 75 respectively when their new mortgage term ends.

The judge noted there was no retirement age for musical directors or barristers and pointed out that singer Burt Bacharach was in his 90s and had recently performed a series of concerts in Dublin.

In another case an arrangement was approved for a woman who will be 90 by the time her mortgage term ends. She was able to show she could cover the payments from her pension.

Irish Independent

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