SundayTimes, MoneyComment, February 5, 2012

Posted by Jill Kerby on February 05 2012 @ 09:00

Borrowers batten down the hatches for a long voyage

I don’t know anyone who is borrowing money these days…if they can help it.

It isn’t that they don’t want to add a new bathroom or replace their car, purchases that usually require an injection of credit. It isn’t even that their bank would reject their application out-of-hand.

It is simply because they are waiting.

Waiting for that sign that things really are getting better, and not just here in Ireland. Signs like unemployment rolls finally reversing, the bottoming out of home prices, forced immigration no longer being a talking point amongst their family and friends and perhaps most of all, no more threats of cutbacks at the office or plant.

Nevertheless, some commentators are pointing to the Central Bank’s latest monthly summary of private sector credit and deposits for December 2011 as a sign that consumer fears are diminishing.

Lending to households was only down €90 million in December instead of €360 million the previous month, they note, but the fall is still a negative 3.8% year on year compared to -4.1% year on year to November 2011.

These minor celebrations of fraction of a percentage movements is a lot of wishful thinking.

Even the fact that household deposits rose significantly in December by €540million to a total of €91.3 billion, after a €865 million withdrawal the previous month, reflects a complex pattern of debt repayment and intensive savings that has been at play for nearly four years.

This was a ‘good’ December for savings for two reasons:  people who were desperately worried about the huge tensions that had built up about Greece and the euro by November saw some frantic deal making by the technocrats and the easing of crisis. The impulse to pay off even more debt or to even shift savings out of the euro or out of Ireland (the latter representing a very small percentage of household savings) would have also eased.

The heightened savings, debt paying, and protective measures for any wealth we still have are just instinctive but sensible reactions to the crushing debt and huge uncertainty that continues.

They may not know it, but it is just part of the financial Ark building that began four years ago all over the country, as personal budgets were dusted down or created, debts tackled and unaffordable spending habits abandoned.

Difficult as it already is to make ends meet, especially in the face of the austerity measures demanded by our IMF/EU paymasters, the real test is going to be creating enough places on your Ark for all the people you’d like to accommodate until we spot blue skies and dry land again.


Civil disobedience

Civil partnerships have only been legal for a year, but the loopholes are already being exploited in the legislation. Last week, Tim Bracken, the co-author of The Probate Handbook, a very in depth and welcome guide to inheritance issues, recounted the case of two heterosexual women, life-long friends, one a widow with terminal cancer, the other a divorcee, who undertook a civil partnership.

The motivation for the civil partnership was that the widow wanted to leave her estate, including her home and extended pension rights to her friend, who she loved dearly and was in straightened financial circumstances. Had she simply named her as the chief beneficiary in her will, the capital acquisition tax bill would have eaten up a huge proportion of the inheritance.   

This way, the widow’s entire capital estate transferred tax-free to her friend, even though they had never lived under the same roof or co-habited in any way. 

I don’t have any problem with the idea of tax-free inheritance: better someone of your own choosing gets to spend or squander your accumulated wealth than the government, which would have already taxed it many, many times. 

I just don’t think this was the idea the government had in mind when they finally agreed that committed same-sex couples were entitled to the same tax and financial considerations as heterosexual, married ones.

Whether this tax-avoidance loophole can or will be closed will probably depend on how annoyed the Revenue becomes if it catches on.

Not such a daft idea 

The furore over the €50 septic tank charge had just about died down when the Daft.ie economist Ronan Lyons delivered his paper late last week to a Dublin economic workshop on his proposed version of a property tax, a site based valuation tax based on 4500 districts, just five different house types and 10 valuation bands.

The Lyon’s formula, which he claimed could raise a whopping €3 billion from year one, at least reflects the view that people who live in cities where they enjoy a myriad of amenities and local authority services, should pay the most and rural dwellers, who have to supply their own sewerage and have no street lighting, pay less.

However, because it is also the site,  not the property that will be valued, the owner of a large garden on which a miserable bungalow sits in the middle of pastoral Meath or rich dairy country in Cork or Limerick is going to pay more than a bungalow owner in a central Dublin neighbourhood.

Property tax is going to be the toughest nut this increasingly inept and unpopular government is going to have to crack next year and no pricing mechanism is going to be acceptable or satisfactory.

My guess is that any residential property owner, bar the most humble, who ends up paying less than .5% of the site or market value a year a year when the barricades have been pulled down and the dust settles, will be very lucky indeed. 

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MoneyTimes, February 1, 2012

Posted by Jill Kerby on February 01 2012 @ 09:00


The publication of the proposals last week of the draft Personal Insolvency Bill is the beginning of the introduction of what will hopefully become a properly functioning, fair and compassionate bankruptcy system. 

It is decades overdue, and the lack of a proper, regulated, judicial and non-judicial system for people to be discharged of the debts they cannot pay, has caused enormous hardship and injustice here, especially in the last four years.

A light has finally gone off at the end of what must seem like a very dark tunnel indeed for thousands of individuals and families.

However – and there is always a ‘however’ – it will be at least another year before the complicated legislation, the Insolvency Agency that will oversee it, and the army of personal insolvency trustees are recruited, trained and regulated.

This will result in a significant cost to the state that has not been determined and did not feature in the 2012 Budget, and depending how many debtors rush to apply and how much mortgage debt is likely to be written off by state owned banks (the biggest creditors), there could be very significant financial consequences for our still fragile banks.

It is this concern – about the hit the banks will take on secured mortgage debt - that is likely to result in a lot more negotiation and the further delay in the publication of the Bill, now expected at the end of April (instead of the end of March) and its passing into law later this summer or in the autumn.

That said, a proper, fit-for-purpose, judicial bankruptcy law and out of court or non-judicial personal insolvency system in a year’s time is better than what we have now, which in regard to full bankruptcy is completely unfit for purpose: a 12 year or longer ‘sentence’ of penury that is harsher, time-wise, than the sentences handed down to most people found guilty here of armed robbery, rape or manslaughter.

But this draft needs a lot of tweaking, adjusting and modifying and unless the period of “discharge” is not also reconsidered for three of the four options, it may not be as successful as its authors expect.

The first, non-judicial option, the issuing of a Debt Relief Certificate (DRC) to people with no or insignificant income, no substantial assets (they can’t be a homeowner) and unsecured debts of less than €20,000 (like overdrafts, credit cards, personal loans, HP agreements, unpaid utilities) is a good one. 

The DRC process, mainly organised with the help of MABS, is completed in one “moratorium” year. It should help many young people in particular who have lost their jobs, are now living on benefits perhaps and are in a debt straitjacket. Giving them a second chance is good for everyone.

However, the DRC has some absurd conditions attached, such as being limited to people who have no more than €60 left to live on a month after all “reasonable” personal expenditure is met (why not €75?); who do not own any good that is individually worth more than €400 (what about a family heirloom?) or a car worth more than €1,200. (So much for road safety.)

The arbitrariness of what is “reasonable” value or income will clearly have to be reconsidered. 

But it is the power that the creditors have that the draft bill’s critics say is worrying.

Up to 65%-75% of creditor approval is required before the debt relief application will proceed in the case of the non judicial Debt Settlement and Personal Insolvency Arrangements (DSA and PIA), even if the debt repayment or write-down plan is considered suitable and workable by the personal insolvency trustee.

This veto is not fair, say New Beginning, the mortgage debt lobby group that has succeeded in stopping many home repossessions over the last year. While welcoming the proposals generally, they suggest that it is the financial position of the banks, not debtors, that is being given too much weight in this draft Bill.

Critics are also questioning some of onerous conditions and especially the length of period before the debts of the participants in the two non-judicial insolvency arrangements and bankruptcy option are discharged: five years, six years and three years, respectively.

In the UK and the North, a bankrupt can be discharged in a year or so, not three years. Their Individual Voluntary Insolvency (IVA) system, which only involves unsecured debt (not mortgages) is quite straightforward and ends after five years.  

Here, the DSA and PIA are hybrids of the IVA in that it includes secure debt like mortgages. (People with huge mortgage debt go bankrupt in the UK).

And while the final Bill needs to be fair to all parties, some financial advisors I have spoken to believe that some PIA candidates could be better off becoming bankrupt rather than spending six years under a trusteeship that could be hugely discouraging.  Even the three year discharge associated with the full bankruptcy arrangement, they say, is two years too long for people who have already been struggling desperately for the past two or three years.  

Until the new Bill is ready, if your debts are becoming overwhelming, engage quickly with your bank or creditors to see if you can come to a voluntary debt reschedule or settlement. 

Contact your local MABS office for help and protection against legal action under the Consumer Code on Mortgage Arrears and Debt.

Where the situation is deemed hopeless and your debts are unsustainable, speak to a good accountant and solicitor about bankruptcy prospects in the UK, where the light at the end of the tunnel might just be a year away.


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