How Does Bankruptcy Work in Ireland in 2017?

man considers filing for bankrupcy at his computerFiling for bankruptcy in Ireland in 2017 is a possibility for certain people whose insolvency cannot be overcome. If you – or someone you know -may be facing insolvency and considering declaring yourself bankrupt then it’s important to understand how bankruptcy works in Ireland.

This short article will provide a simple summary of bankruptcy procedures in Ireland by looking at three key areas: Eligibility for Bankruptcy, the bankruptcy process and the consequences of bankruptcy.

Let’s begin.

The 3 Criteria to Be Eligible for Bankruptcy in Ireland

  • In order to declare bankruptcy your debts must exceed your assets by at least €20,000.
  • The debtor must be insolvent, meaning that you are unable to satisfy creditors or discharge liabilities.
  • Before looking to declare yourself bankrupt you must first have attempted to resolve debt issue through Personal Insolvency.

The Bankruptcy Process in Ireland

  • The first step in the bankruptcy process is to complete a Statement of Affairs and a Statement of Personal Interests.
  • Them you will put forward an Application for bankruptcy to the High Court.
  • The final step is Adjudication.

 

The Consequences of Bankruptcy

Being legally declared bankrupt means that:

  • All if your debts are written off.
  • All of your assets (other than the necessaries of life) are transferred to the Official Assignee.
  • You may have to make payments to Official Assignee for up to 3 years following your declaration of bankruptcy.
  • You will be automatically discharged from Bankruptcy in 1 year.

 

There are a number of areas directly related to bankruptcy that you may have specific questions about. It’s important to know what you are getting into ahead of making a bankruptcy declaration and understand how being bankrupt will impact on different aspects of your personal and professional life.

I have many years experience handling bankruptcy applications and Personal Insolvency Agreements. The following are some of the most frequently asked questions around the subject of bankruptcy. I will be answering them with individual articles over the coming weeks. 

if you have another question please feel free to ask it in the comment box below or by sending me an email to info@newbeginning.ie and I will be sure to write an article and address it on this blog and add it to the  list below.

Bankruptcy in Ireland FAQs

What are the consequence of bankruptcy for my family home?

How will my pension be affected by bankruptcy?

Will there be a payment order after becoming bankrupt?

What are the implications of bankruptcy on being a director of a company?

What are the consequence of declaring bankruptcy for co-borrowers or guarantors?

Can I Save My Home in Personal Insolvency?

Can you save your home in Personal Insolvency? The answer is Yes!

Person grimacing with personal insolvency paperwork

A Personal Insolvency Arrangement is a formal deal made between borrowers and lenders which is designed to achieve 2 principal things:

  1. – To protect the family home
  2. – To return the borrower to financial stability

Many people came out of the Great Irish recession with reduced income and huge debts. 

They found themselves unable to meet the financial commitments made during the Celtic Tiger years when banks handed out hundreds of thousands of euro like confetti at a wedding. Property prices tumbled creating unprecedented negative equity for ordinary people. And despite the banks getting bailed out by the tax payer, those same banks pursued ordinary borrowers with venom.

When the Troika came to town in 2010 they instructed the Government to intervene.  This led to the creation of a Personal Insolvency regime designed to help people retain their homes and get back onto a level financial footing.

How does a Personal Insolvency Arrangement work?

A Personal Insolvency Practitioner (PIP) will review a borrower’s circumstances.  They come up with a plan which achieves the desired result of saving the home and restoring the borrower’s financial circumstances.

In almost all cases this will involve substantial debt write down of the mortgage debt and of all other debts.

There is a vote among the lenders and creditors on the proposal. If the lenders vote against the proposal it is open to a borrower to appeal this to the Circuit Court.  The Judge now has power to impose the deal – even against the bank’s wishes.

Let’s look at an Example of a PIA

Background

The borrower is a finance manager with the HSE and resides in Dublin.

The balance due on her mortgage was €333,785 payable over 20 years at a rate of 3.25% – meaning monthly payments of €1.571.

The current market value of the property was €160,000 – leaving negative equity of €173,785.

The borrower also had a credit card debt of €10,000, a Credit Union debt of €3,800 and another debt of €6,200.

The PIP considered the borrowers circumstances and proposed as follows:

The Mortgage Debt be written down to €160,000 with the negative equity piece written off in full. This meant that the monthly mortgage payments were reduced to €924

The other debts would be reduced by 92% paid over 6 years

The bank (Permanent TSB) rejected the proposal and offered a Split Mortgage instead.

The case came before the Circuit Court which rejected PTSB’s objection and confirmed the proposal.

The result is now that the borrower has a long term sustainable mortgage and all of her other debts will be dealt with by affordable payments over 6 years.

She was able to save her home while in a Personal Insolvency Arrangement.

The circumstances will be different for each individual debtor, but the best thing you can do is to take action. Burying your head in the sand only prolongs the inevitable. So, find a Personal Insolvency Practitioner today and find out where you and your home stand.

Thank You

Thanks for reading this article. If you have any questions or related topics you would like to see covered here in the New Beginning blog please feel free to leave a reply below. I love to hear from readers and get new ideas for articles.

If you would like to speak with a New Beginning PIP please feel free to email us here or Call us on 01-5240000. 

Many thanks,

Ross Maguire

 

 

The Pros and Cons of a DSA and PIA

 

What is the difference between a DSA and a PIA and what are the advantages and disadvantages of each?  If you are looking for a debt management solution then you’ll need to know this, and you’ve come to the right place.

The following article will help you understand the pros and cons of a Debt Solvency Arrangement and a Personal Insolvency Arrangement.

person considering a debt settlement arrangement

The Pros and Cons of a Debt Settlement Arrangement

A Debt Settlement Arrangement (DSA) is a formal arrangement made between a borrower and his or her creditors. It deals only with unsecured debts and so does not include mortgages.

The steps are as follows:

1-Debtor has debts that cannot be repaid.

2-Debtor’s circumstances are analysed to determine whether he can afford any payment.

3-If the debtor can afford to make some payment a proposal is made whereby the debtor pays what he can for a period of up to 60 months.  After this time the balance is written off.

Pros of Debt Settlement Arrangement (DSA)

-Debt is written off – usually up to 80% of the amount.

-Debtor is solvent and his credit rating will return.

-A DSA can deal with multiple creditors where they will all be bound by the arrangement.

-In most cases there will be no fees payable.

 Cons of a Debt Settlement Arrangement (DSA)

-The arrangement is a formal arrangement.

-There is a vote where 65% of the amount of the debt must agree so the deal can be rejected in some circumstances.

-60-month arrangement with reviews every year.

The 60-month arrangement is often something that people do not like. This can be overcome by a lump sum payment in lieu of the 60-month arrangement. We often see cases where a debtor can source funds from a third party to be able to make a once off payment and be free from the debt immediately.

 

The Pros and Cons of a Personal Insolvency Arrangement

A Personal Insolvency Arrangement (PIA) is a formal arrangement made between a borrower and his or her creditors. It deals with all debts and is particularly important for family homes.

The steps are as follows:

1-Debtor has debts that cannot be repaid which include a mortgage.

2-Debtor’s circumstances are analysed to determine what he can afford with priority given to the family home.

3-If the debtor can afford to make adequate payments, a proposal is made whereby the debtor pays a restructured mortgage and a contribution to other debts for a period of up to 60 months, after which the balance of the other debts is written off.

 

 Pros of a Personal Insolvency Arrangement (PIA)

-Family home is made secure by restructure which can include substantial debt write off.

-Other debts are written off – usually up to 90% of the amount.

-Debtor is solvent and his credit rating will return.

-A PIA can deal with multiple creditors where they will all be bound by the arrangement.

-In most cases there will be no fees payable.

-Where a bank rejects the deal, the Court can intervene and impose it on the creditors where the Court decides the deal is fair.

 

Cons  of a Personal Insolvency Arrangement (PIA):

-The arrangement is a formal arrangement.

-In some cases, the debtor may be required to make payments towards unsecured debt for a period of up to 72 months.

 

Thank You

I hope you found this article useful. Should you have any further questions about a DSA or PIA or indeed about debt management more generally please do not hesitate to get in touch with the New Beginning team.  We are here to help.

What is Mortgage to Rent and How does it Work?

mortgage to rent, houses in a line

The Mortgage to  Rent Scheme can help people to stay in their homes after they have relinquished ownership of the property due to their inability to meet the mortgage repayments. 

Thousands of people in Ireland cannot afford their mortgage. Falling into mortgage arrears  puts them in danger of having their home repossessed and ultimately of being evicted. Naturally this is a very difficult experience for people, who have often lived there for many years and established roots in their local communities. 

The Mortgage to Rent Scheme is designed to help these people by enabling them to stay in their home without the debt burden of owning the property.

The Mortgage to Rent process works like this:

  1. Borrower’s mortgage is deemed unsustainable
  2. Borrower qualifies for social housing based on the level of their income
  3. The house is deemed suitable to the borrower’s needs
  4. Borrower surrenders their home to lende
  5. Lender sells the property to an Approved Housing body or other qualifying participant of the Mortgage to Rent Schem
  6. Borrower becomes a tenant of the Approved Housing Body or Local Authority and pays an affordable rent
  7. Borrower retains the right to re-purchase the property in the future

The upshot of Mortgage to Rent is that the borrower remains in their home paying an affordable rent and their tenure is secure. Should their circumstances improve they can re-purchase the property in the future.

For more information on Mortgage to Rent please call the New Beginning team on 01-5240000.

4 Steps in the Mortgage Arrears Resolution Process (MARP)

Being in Mortgage Arrears is a difficult position. But there is help at hand.  The MARP system is in place to help you negotiate your arrears with your lender. Crucially, during the MARP process a lender cannot institute legal proceedings against a borrower.

MARP stands for the Mortgage Arrears Resolution Process. It’s a system devised by the Central Bank of Ireland which requires all lenders (banks and funds) to adhere to a process for borrowers who fall into arrears with their mortgage.

There are 4 steps in the Mortgage Arrears Resolution Process. If you’re in mortgage arrears you’ll want to know what each of these steps are and what they mean for you.

 

4 Steps in the Mortgage Arrears Resolution Process

MARP STEP 1: All About Co-Operation

In order to be protected by MARP you must be a Co-Operating borrower. This means that you must supply the lender with a Standard Financial Statement (SFS) and supporting documentation. This form is available online or from your lender and care should be taken in filling it out.

Once you have supplied a SFS form you are protected.

 

MARP STEP 2: Lender Carries Out an Assessment

The lender will consider your SFS. Based on that consideration they will propose a resolution if that is possible.

To begin with the lender will propose a short-term solution, which is usually for 3/6 months. There are a variety of short term solutions, but commonly they require the borrower to pay as much as they can pay.

 

MARP STEP 3: Offer of Resolution

You will receive an offer of resolution. Offers of resolution may include:

  • Paying interest only, or interest and part of the capital, for a period
  • Permanently or temporarily reducing the interest rate
  • Deferring repayments (or part) for a period
  • Extending your mortgage term
  • Changing the type of mortgage that you have
  • Adding arrears and interest to the principal
  • Warehousing part of the mortgage (including through a split mortgage)
  • Reducing the principal
  • A "deferred interest" or other voluntary scheme

Where the lender determines the debt to be unsustainable they may commence enforcement proceedings.

 

MARP STEP 4: Appeal

There is a right to appeal any decision made by the lender to an appeals system within the lender. Following this you can also make an appeal to the Financial Services Ombudsman.

 

 

Being in mortgage arrears is a very difficult time in your life.  It's important to make sure you're informed about your borrower rights and debt negotiation protocol in Ireland.  You can find more information about debt negotiation, insolvency and mortgage arrears here on the New Beginning website - and if there is a specific question you have please feel free to send me an email on info@newbeginning.ie.  

Investment Funds are Key to our Future as a Society

Last week Ireland sold an inflation linked bond worth €609 million euro. The buyers of this bond will get a return of 0.25% for 23 years. As inflation goes up or down the return will follow.

Think about this for a second.

International investors are willing to give Ireland huge sums of money at tiny returns. The funds are secured by nothing more than Ireland’s word – we will pay the coupon and we will return the funds in 23 years’ time.

Now look at our need for infrastructure – housing, hospitals and water systems to name but a few. Each of these is mission critical – in that we absolutely need the infrastructure. The welfare of our society is dependent on it.

Ireland is constrained in what it can borrow due to proper (in my view) rules preventing governments from borrowing recklessly. Governments do borrow recklessly by the way!

But pension funds and other investors can place money into mission critical infrastructure and where the State is involved, even tangentially, the rates will be low. Semi state bodies or local authorities are the State acting at arm’s length.

Imagine an arm of the State (not the State itself) were to borrow money on the markets to put into real infrastructure – social housing for example.

Housing, built properly, will last for 100 years, and more. At current rates the average house (€250,000) at 3.5% would cost the State €730 per month. Taking a family living on social welfare only, the household income will be conservatively €2000 per month. It is generally expected that the family will pay 10% of their household income on rent meaning the overall cost to the State in providing a €250,000 home to that most vulnerable family could be as low as €122 per week.

This situation for the State becomes even more improved by the fact that over decades the property will increase in value so that the State body becomes asset rich meaning more funds to provide more housing. All the while pension funds receive a return on their investment – and if those pension funds are Irish, the benefits are directed into the economy.

The biggest problem we face is ideological, which generally comes from people not willing or able to think beyond a cliché.

As with the water debacle there is a populist view that taxation can pay for everything – even though we know from bitter experience that this is false. Extra taxes cause a drag on the economy and when downturns come – as they do – the money dries up and there is no investment.

But pension funds, endowment funds, insurance funds, and the rest, are looking for homes. Ireland has, if nothing else during the crash, proved that we will pay our debts and so we can borrow at low rates.

These funds provide a huge opportunity to create the infrastructure we need – delivered today and paid over long periods of time.

The so-called vulture funds which, ironically, are financing most of the developments in Dublin today, are monies from ordinary people in far flung parts of the world. We could and should be doing this ourselves.

The harsh reality is that if we continue to be burdened with 19th century thinking we are going to get 19th century infrastructure.

Our thinking needs to change.

Avoid Receivers at All Costs

Receivers are appointed in Ireland without the involvement of a Court.

When somebody enters into a mortgage type agreement with a lender, and where the secured property is not a family home, the borrower gives the lender a right to appoint a receiver when the borrower has defaulted on the loan.

The bank will first call in the loan which involves making a demand for full payment within a period of time. Often this can be a very short period – in some cases even hours. If payment is not made within the time allowed the lender will appoint a receiver. The receiver can then take over the property, change the locks, and any tenant will then be required to make any rental payments to the receiver.

The receiver will be responsible for the property and the borrower is effectively shut out. In cases where the borrower resists or impedes the receiver an application will be made to the High Court for an order restraining such conduct and if the borrower does not comply he will find himself in contempt of court and facing severe penalty.

In most cases the receiver will sell the property at a time of his choosing. The proceeds of sale will be used to pay the receiver’s costs and any other charges on the property such as property taxes or management changes and the balance will be remitted to the bank. Receiver’s costs can be substantial and often receivers will fire sell, meaning that the borrower loses out. This is because any remaining debt after the sale has been complete and all the costs have been paid will be borne by the borrower.

Borrowers often bitterly complain abut the conduct of receivers and while their complaint carries much moral weight, the legal position is very much set against the borrower.

In some cases receivers have been discharged by the Court for procedural or other irregularities but this is very much the exception. The best advice for borrowers is to avoid the appointment of a receiver at all costs.

 

Email us at  info@newbeginning.ie or call us on 01-5240000 to discuss options that might be of help to you.