Jill Kerby

EASING OF BANKRUPTCY RULES OFFERS A GENUINE DEBT LIFELINE

Insolvency and bankruptcy are debt solutions that should finally come into their own in 2016, now that the legal process and regulations have finally been revised to reflect the reality of personal indebtedness in Ireland and how it is done in the UK and other economies similar to our own.

The most important revision, just introduced, is the reduction in the bankruptcy discharge period to just one year from three. (It was a minimum of 12 years before 2012).  Bankrupts with higher incomes will no longer face income payment orders of up to five years to creditors; instead they have been reduced to just three.

With the general election just weeks away, and the coalition insisting that we’ve made a splendid recovery from the great 2008 recession, the broader consensus is that the recovery has been uneven, with Dublin and its commuter belt enjoying the bulk of new employment and higher consumer spending. While this may be so, the state of personal indebtedness – and recovery – is more nuanced.

All across the country, ordinary people are struggling with the excessive amounts of credit they borrowed, too often to buy investment properties that they hoped would make them a quick profit in the expectation that prices would keep rising. Many believed this was an opportunity of a lifetime to top up or create pensions from the buy to let house or apartment, too often financed with 100%, interest only non-tracker mortgages.) They, and their lenders simply never countenanced the bursting of the bubble in 2007-8 and the collapse of property values. Nor did they cope very well with the subsequent mass unemployment and emigration, the fall in rental incomes, or the rise in interest rates. Increasing demands by the banks to repay both the capital and interest, meant that now two parties were falling heavily into arrears:  the tenant and the landlord.

The unprecedented rise of household personal/commercial debt (peaking at c€185 billion in 2009) left both politicians and regulators stunned between 2008-11. Instead of acting decisively  - their excuse was that the state of the nation was taking all their attention – very little happened until 2012 when the mortgage arrears process was revised and the new insolvency legislation was finally introduced.

Unfortunately, both were deeply flawed – and widely criticised.  Instead of listening to the experienced, professional insolvency experts who warned that the onerous rules and restrictions would not work, the Ministers for Finance and Justice stubbornly insisted on making the new insolvency and bankruptcy rules as difficult, bureaucratic, expensive and emotionally penal as possible.

Today, property debt continues to be paid down at a rate of about a billion a month; over 110,000 mortgages have been adjusted via the MARPS process or written off. The reduction in costs and charges at the Insolvency Service of Ireland; more liberal bankruptcy discharge periods; allowing the courts to intervene to help settle disputes between creditors and debtors (ie the end of the bank veto) and a new legal support scheme for homeowners at risk of losing their homes (administered through MABS and the Legal Aid Board) means that the huge backlog of property arrears may finally be shifting.

According to the latest report from the ISI there were 70% more insolvency and bankruptcy solutions in 2015 than the previous year including 479 bankruptcies, 641 six year duration Personal Insolvency Arrangements, 221 five year Debt Settlement Arrangements for non-secured debts and 346 one year, Debt Resolution Notices (now up to €35,000 worth of unsecured debts compared to €20,000 originally.)

Meanwhile, anyone who went bankrupt in 2015 or 2014 under the old three year discharge rule will now be discharged after one year (that is, retrospectively under the new 2016 rules). 

What will hopefully emerge from these long awaited regulatory revisions is a greater realisation by both banks and debtors that large numbers of the 110,000 mortgage debt modifications (extended and interest only periods, split loans, etc) are not tenable over the long term, especially if property values fall or interest rates rise.

New Beginning, a well known private debt and insolvency company (see www.newbeginning.ie) claim that up to 37% of restructured cases (or 45,000) are unsustainable and 35,000 are now back in arrears.  The only long-term solution for many of them will be a formal insolvency or bankruptcy.

In a statement last week, New Beginning founder Ross Maguire repeated what he has said many times, that “The problem can only be addressed by an acceptance that debt must be written down – after eight years we must begin to realise that there is no other option.”         

Anyone who is in this position – with an interminable amount of debt that has still not be resolved satisfactorily, or has had a temporary resolution ‘solution’ that is simply not working, should contact a good PIP in their community or the Insolvency Service of Ireland directly at www.isi.ie .

The only thing you are sure to lose…is your anxiety.

Jill’s 2016 edition of the TAB Guide to Money Pensions & Tax is now in all good bookshops. If you have a personal finance question for Jill, email her at jill@jillkerby.ie or write to her c/o this newspaper.