Is a Personal Insolvency Arrangement the solution to your mortgage arrears?
Things can often seem desperate for homeowners who find themselves trapped in debt but a Personal Insolvency Arrangement (PIA) can represent a way out.
A PIA allows people who cannot meet their debts to find a resolution through an agreement that involves debt write-downs and a restructured loan arrangement. Although PIAs are not exclusive to homeowners, it can be a particularly effective solution for people who are struggling with home mortgage arrears.
According to the Insolvency Services of Ireland (ISI), PIAs return 95pc of debtors to solvency while keeping them in their homes.
Abhaile is a state-funded mortgage arrears support service that works to keep people in their homes. If you’re struggling with mortgage arrears or facing a repossession order, you can sign up to Abhaile by contacting Money Advice & Budgeting Service (MABS). They can offer help, advice and a free consultation with a personal insolvency practitioner (PIP).
We spoke to PIP Tara Cheevers, to find out what insolvency options are available.
What personal insolvency options are available?
“If you are in a position where you do not have sufficient income to maintain a reasonable standard of living and to pay all of your debts, as and when they fall due, then you need a personal insolvency solution,” says Tara.
A Personal insolvency solution is a way to resolve your debt issues and get back on track. The Personal Insolvency Act offers people three options to choose from, depending on your circumstances.
“There’s the DRN, which is for anyone who has no assets but debts up to the value of €35,000,” explains Tara. “They would get their debt resolved through a MABS office, through an intermediary who would organise to have their debts written off for them.
Debt Relief Notice (DRN) allows for the write-off of debt (generally unsecured) up to €35,000, subject to a three-year supervision period.
“The PIP will deal with the other types of arrangements, which are the Debt Settlement Arrangement (DSA) and the Personal Insolvency Arrangement (PIA)” adds Tara.
“The DSA is a five-year repayment plan to get you back on track and to have those debts written off where you’re not in position to repay them as and when they fall due over the schedule of repayments that you have signed up to. It will be all debts that aren’t mortgage-related or aren’t secured against any asset.”
Finally, the PIA deals with secured debt up to €3million and an unlimited amount of unsecured debt over six years.
“Any type of debt at all goes into a PIA,” adds Tara. “With a PIA, our main focus would be keeping the debtor in the family home. So we would look at how would we restructure the mortgage in such a way that they can stay in the family home and we try to get rid of all of the surplus debt that’s dragging them down.”
Even if it’s not possible to restructure your mortgage debts so that you can keep your house, the insolvency process will look at other options like the Mortgage to Rent (MTR) scheme. This can allow you to write off your outstanding debt and stay in your family home as a social housing tenant.
Tara believes that there is a personal insolvency solution for most people.
“If none of those three options are suitable, the final option is bankruptcy but I firmly believe myself that nobody should have to go bankrupt. There should be a solution within those three areas that will help a person out without them having to go through bankruptcy.”
Working with people’s debts to find a solution
Homeowners can secure the services of a PIP through the Abhaile scheme, through the ISI or by contacting a PIP directly. Abhaile helps people with mortgage arrears navigate the Mortgage Arrears Resolution Process and can offer homeowners a free consultation with a PIP.
Once you’ve secured the services of a PIP, they will then look at how they can restructure your debts so that you can manage repayments. There may be some debt write-off as part of that process.
“When I first meet with a client, I don’t just look at it straight away with the view that we’re getting everything written off,” says Tara. “I look at it and see what’s affordable. What payments are affordable? Then I work backwards from that.
“We have to be independent as PIPs because we’re working independently for both the debtors and creditors. Based on the debtor’s means and utilising all the means available to the debtor, we build an arrangement to work around those means.”
A PIP will discuss the options with a homeowner and the homeowner can then decide if they want to go down the route of a PIA.
“Once they decide what route they want to take, they come back, make an appointment and we commence the application,” says Tara. “We’ll get a protective certificate. Once we get that, we put together a proposal, go to the creditors and try to get the actual arrangement put in place.”
The length of the process will vary from case to case and every PIA will be a bespoke solution for the homeowner or homeowners based on their debts, their means and their repayment ability.
“Every individual is different. There isn’t a one-size-fits-all arrangement.”
A second chance
A PIA allows people to consolidate their debts and find a short-term solution that can help them get back on track financially.
“You have to look at a scenario where you have someone who has several debts and they’re trying to pay everyone off - they could be 20 years doing that,” explains Tara. “In a personal insolvency situation, it’s six years. At the end of your six years, or five years if it’s a debt settlement arrangement, you’re just moving forward with your new restructured mortgage which you can now manage. You can now start living again, spending again and become active in the economy again.”
Once you choose this option, all of your debts have to be assessed and included in the overall arrangement. The PIP will work on consolidating all these debts and setting up a feasible repayment plan that allows you to remain in your home and move forward with a fresh start.
Tara has one simple piece of advice for anyone struggling to pay debts who can’t see a way out of their situation.
“Go and talk to somebody. That’s number one. Go and speak directly to a PIP, go to MABS, or go to the ISI. But just go and see what your options are. What I say to people is that the Abhaile scheme is there to be used so go and speak to somebody. It’s not going to cost you anything to actually find out what your options are.”
If you or somebody you know is in mortgage arrears, or you fear you are at risk of losing your home, you may be eligible for free face-to-face financial or legal advice under the Abhaile scheme. For information, call the MABS dedicated helpline on 076 1072000, or visit the website.