How will my pension be treated in bankruptcy?

man contemplting

In bankruptcy all your assets, except the necessaries of life, become vested in the Official Assignee. There are some exceptions to this rule and pension are one of those exceptions.

Put simply, your pension does not vest in the Official Assignee where it is not accessible for a period of at least 5 years after the adjudication.  In many cases this will mean that a pension is not affected by bankruptcy, but advice needs to be taken before adjudication to ensure this is the situation.

For example, we came across a case recently where the debtor believed that his pension was not accessible until he was 60 years of age. As he was 48 at the time of his bankruptcy he assumed his pension was safe. However, his pension arose from a previous employment. When he ended this employment his employer (as is normal practice) used the pension fund to acquire a buy out bond. A buy out bond is accessible from the age of 50. As the debtor was 48 at the time of his adjudication the fund was accessible within 5 years, and the monies therefore became vested in the Official Assignee.

If the debtor had been aware of this before his adjudication he could have acquired a new pension product that was not accessible until the age of 60 thereby securing the fund from the consequences of bankruptcy.

In other cases where the debtor is of an age so that the pension is accessible the purchase of an annuity product may be a solution. Annuity products are generally considered bad value but they do give an income for life. This is obviously preferable to the loss of the fund in total.

Again, prior to considering adjudication in bankruptcy advice should always be taken on the effect, if any, this will have on pensions.

I hope you found this useful. Please feel free to leave a comment below if you have any further questions abotu pensions inbankruptcy.

What are the costs of Bankruptcy in Ireland?

calculator on deskThere are two key costs associated with filing for bankruptcy in Ireland.

The Fixed Cost of Bankruptcy in Ireland

The fixed costs of bankruptcy are less than €500. This covers the costs of the Court papers necessary to apply for bankruptcy in Ireland.

Personal Insolvency Practitioner (PIP)

It’s always advisable that advice be taken from a solicitor or other professional in advance of seeking adjudication.

As part of the bankruptcy process you are required to meet a Personal Insolvency Practitioner (PIP) who has to analyse your financial circumstances and determine whether a Personal Insolvency Arrangement or Debt Settlement Arrangement is more appropriate. If the Personal Insolvency Practitioner determines that bankruptcy is the best solution he or she will be required to provide written evidence of this to the Court.

The application is made to the High Court and engaging the services of solicitor or counsel to deal with this will have added costs.

Where you have a pension, it is always appropriate that advice be taken as to the possible effect of bankruptcy on those assets.

A Personal Insolvency Practitioner may charge for this service. 

So, the costs will depend, in the main, on the advisors you choose to engage.

It should be noted, however, that there are some charities who offer these services at reduced or zero rates.

For more information on bankruptcy in Ireland please click here.

3 Ways to Protect Your Home in Mortgage Arrears

 

image of a gouseFor many people struggling with mortgage arrears a constant question is whether the problem can be solved and whether that solution will mean their home can be protected.

Over the last while there have been several innovations introduced which, in most cases, mean that homes can be protected.

These include:

  • Bank offered solutions
  • Personal Insolvency
  • Mortgage to Rent  Scheme 

In this article, we’ll look at each way to protect your home  in mortgage arrears in turn.

Bank offered solutions

Despite much misguided commentary neither banks nor funds want to repossess homes.

However, where a borrower does not co-operate or engage with the lender there may be no other option available to the lender,

So, the first step is all about co-operation.

Co-operation means:

  1. Communicating with the lender
  2. Providing the lender with a Standard Financial Statement and supporting documentation
  3. Paying what you reasonably can in a timely and regular manner

Once you are co-operating you are protected and the lender is required to offer a solution – if a solution exists.

Solutions include:

  • Capitalisation of arrears
  • Extension of the term
  • Split Mortgage
Personal Insolvency

Under this statutory scheme, a borrower can be offered a deal once they can at least afford a mortgage based on the current market value of the property, extended over the longest period possible, and based on the lowest reasonable interest rate.

Furthermore, all other debts can be dealt with under this system.

The real strength of the system is that even if the bank or fund refuses the offer, a Court can intervene and impose the deal on the lender.

To recap:

If you can afford a mortgage based:

  • On the current market value of the property,
  • Extended over the longest period possible, and
  • At the lowest reasonable interest rate

Your home can be saved.

 

Mortgage to Rent

The Mortgage to Rent scheme is available for those whose mortgage is unsustainable and who qualify for social housing.

Under Mortgage to Rent a borrower surrenders their home to the lender who then sells the property to an Approved Housing Body or other provider. The former owner then becomes a tenant in the property on a 20 or 30-year term paying an affordable or means tested rent.

The borrower may re-purchase the property in the future if their circumstances change.

 

 

Life Insurance Uncovered

Life insurance was first designed when communities back in Roman times used to club together to help a family out when the mother or father passed away unexpectedly. Over time, communities would start putting a few quid aside every month to build up a community pot of cash for unexpected deaths of members families.

 

And so, life insurance was born. The life insurance industry today is a multibillion euro industry and the numbers behind it are a little more calculated.

 

Now it’s hard to go to work without hearing how mortgage protection is not life insurance and how one company is cheaper than the other.

 

Let’s deal with the numbers behind it first. Life insurance is calculated product really. And how life insurance companies determine their price is similarly calculated.

 

Life companies look at the death statistics in a country year on year and determine a probability of a client’s death accordingly.

 

Let’s take an example.

 

A 45-year-old female wants life insurance for 1 year of €100k. The death stats show that only 0.0015% of 45-year-old females die at that age in the country. So, the starting price for this level of cover will be €150.

 

Then a life company will add profits, administration, margin for error, and so on and the price may end up being say €225 per year. The life company then hopes to get thousands of similar lives and assuming the death trends continue – they make money.

 

So, what are the factors that affect the price of your life insurance. Let me list some of these for you.

  1. Age – how old you are when you take it out is a big one. The younger you are the cheaper it will be.
  2. Sum Assured – This is the obvious one, the more cover you want the more its costs.
  3. Health – Prices for healthy people are less than for those with medical conditions.
  4. Loadings – Life insurance companies will attach loadings or price increases for those who have medical conditions but importantly different life companies attached different loadings so don’t just accept what one provider says. Shop around.
  5. Smoker status. – Premium increases for smokers are significant. You are considered a non-smoker if you have been off cigarettes for 12 months or more.
  6. E- Cigarettes – Some providers consider e-cigarette smokers to be non-smokers, some consider them to be a half smoker and others attached full smoker rates. If you are an e – cigarette smoker then let us know.
  7. Term – The number of years you want cover for will determine the price.
  8. Plan type – Life Insurance comes in two general forms, guaranteed and reviewable. Guaranteed plans have their premiums fixed from the start offering certainty. Reviewable plans allow the life company to amend the plans price as you get older so future prices are unknown.
  9. More plan types. Life insurance plans can increase, decrease or stay level. They can have extra benefits and yes, you guess it, these all affect the price.

 

So, there’s plenty in this as you can see.

 

Taking all of the above factors into account means there is absolutely a need to review your life insurance set up. If any of the above have changed for you then you should review this. If you mortgage amount has changed, if you have stopped smoking, if you are unmarried parents, if you have a reviewable plan.

 

Please take the opportunity to look at this as it is pointless paying for something that doesn’t do exactly what you want it to do.

 

If your circumstances have changed at all then I am happy to rule the roost over this and review it for you.

 

Just get in touch on 01531 0571 to arrange a chat or email me on nick.lawlor@newbeginning.ie and I’ll help if I can.

 

Chat soon

Nick

 

 

Court Directs Debt Write Down on Family Home Mortgage

Earlier this month a case came before the Courts in Dublin involving a borrower who had significant arrears on her home mortgage with Permanent TSB. The borrower had other unsecured debts as well.

The full mortgage was €333,785 and the value of the borrower’s home was €160,000. The interest rate on the loan was 3.25%.

The borrower had met with our Personal Insolvency Practitioner who had proposed the following arrangement:
• Write down of mortgage by €173,000 from €333,000 to €160,000
• Continuation of interest rate and term
• Write down of unsecured debt by 92%

PTSB objected to this proposed arrangement and the matter came before the Courts where judgement was delivered early this month.

PTSB raised several objections.

The primary objection was around an alternative offer they made which involved ‘parking’ €97,000 of the debt at 0% for the duration of the loan. The monthly payments under the PTSB proposal were €1121 while the monthly payments under our proposal were €924.

The Judge expressed concern as to how the borrower was going to afford to pay €97,000 at the end of the mortgage period when she would be 71 years of age and her working life would be over.

Balancing both positions, and taking account of PTSB’s argument that it was being unfairly prejudiced, the Judge directed that the proposal made by the Personal Insolvency Practitioner should come into force.

The position for the borrower now is as follows:
• Her home mortgage is sustainable and will be fully cleared at the end of the term
• Affordable payments will be made to unsecured creditors for a period after which the balance (92%) will be written off in full.

The position for PTSB is as follows:
• It has a long term, sustainable, secured and performing loan at an attractive interest rate which is an excellent asset on its balance sheet. Furthermore, it no longer needs to spend resources on arrears support or on enforcement.

To Sell or Not to Sell – PTSB should sell its Non-Performing Loans

PTSB is being damaged by the large volume of Non-Performing Loans (NPLs) on its balance sheet. The same must be true for AIB and other banks operating in the State.

There is a reason for this.

Regulators require banks to hold capital against NPLs meaning the banks are restrained in the amount of lending they can do once they hold volumes of NPLs.

Furthermore, the costs of servicing NPLs is substantial. For performing loans there is little a bank is required to do – but once a loan goes into default, costs shoot up as the process of fixing the loan or enforcement begins.

But despite all this another important factor must be considered.

Banks are not very good at dealing with NPLs. They are constrained in the deals they can do to avoid contagion – if I get a big write off why would my neighbour continue to pay? And chasing bad debts is not the business of a bank. The business of a bank is fundamentally to protect depositors’ funds and to lend those funds prudently into the economy and of course to manage the flow of money though the economy.

The choice facing PTSB is to continue as it goes – and suffer an ongoing dead weight of NPLs or to sell them on.

There are buyers of NPLs out there well established in the market. My view is that PTSB and AIB should go ahead that dispose of its NPLs as soon as possible leaving those institutions free to do what they are supposed to be doing.

The only reason the banks might not sell their NPLs is political. They are afraid of an adverse political reaction to such sales.

However, from what we see such concern is unfounded.

Borrowers remain fully protected and are often in a better position when their loan is acquired. This is because the new owners are motivated to do deals to move things on and are generally good at it.
Our experience is that funds are easier to deal with; far more responsive and are genuinely open to solutions. For example, the majority of Mortgage to Rent solutions (over 70%) have been put in place by non-bank lenders – AIB on the other hand is responsible for less than 2% of such solutions.

The Personal Insolvency system which has special protections built in to deal with family homes applies to banks and non-bank lenders equally. The law means that anybody who can afford a mortgage based on the current value of their property over the longest possible period and at the lowest possible interest rate is entitled to a deal which will keep them in their home.

All in all, we encourage Irish banks to sell their NPLs. It has been 10 years now – surely it is time to move on!

Is Mortgage Protection and Life Insurance the same thing?

You’ve probably heard the ads on the radio asking you whether you have life insurance or mortgage protection. What are they talking about and should you bother checking?

Well, allow me to explain.

Mortgage protection is simply a name given to type of life insurance that decreases over time alongside your mortgage as you pay it down. It starts at say €300k (if that’s what your mortgage amount is) and reduces to zero over the same period of time that your mortgage is due to run for. If there is two of you on the mortgage then your mortgage protection will have to include the two borrowers but the life insurance will only pay out on one of you dying, whichever one of you dies first. Fun stuff I know! The cost will remain fixed for the full term of the mortgage too even though the cover is reducing.

Being honest it’s not the best value type of life insurance available to you, but it conveniently does work well beside your mortgage. However, it can cost just a little bit more to have a far superior policy that doesn’t decrease and pays out in the event of both of you passing away which means that you are insured for double the amount with the benefit remaining the same throughout the term.

I looked at the cost for client last week and their bank had quoted them €62 for a joint life mortgage protection policy. Whereas a dual life (double the cover) policy which stayed level throughout the full term was only €71. Spending the extra €9 got these clients a far better policy.

Life Insurance which isn’t designed to be mortgage related tends to be better value in my humble opinion. This type of life insurance is not linked to your mortgage, so it is designed to provide financial security to your family in the event of you passing away.

Now this is the interesting bit if you do pay life insurance. This is the industry knowledge bit that allows you to get one up on the lender that sold you your existing life insurance policies.
1. Banks are tied agents, so they can only advise you on one provider of life insurance. That provider tends to not offer discounts to its bank customers as they have a captive audience.
2. There are several providers of life insurance in Ireland and the ones that aren’t partnered with the banks will do deals to get your business. This means that the same thing you pay for today could be 15% – 20% cheaper elsewhere. Well worth a look.
3. Set up is crucial. If you have an old mortgage protection policies it is fairly likely that it could be replaced with a far more beneficial policy for a very similar premium by using some of the discounts that are available, but the setup is crucial. Get this bit right!

When we set up New Beginning Financial Services one of the most important things we did was that we retained our independence. We are not tied to any one provider and as such we take advantage of the discounts that aren’t available elsewhere. We get paid from whichever provider we use, which means we don’t have to charge you fees directly so no charge.

We have been very busy recently changing client’s life insurance set up and in every single case we have improved a client’s finances.

As always, we would be delighted to help you too so please just send me a quick email on nick.lawlor@newbeginning.ie or call Kathy on 015310571 and I’ll call you back.

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Payments Under Personal Insolvency

Some people express concern about entering an Insolvency Arrangement which will last for 6 years. During that period, the debtor will be subject to annual review, meaning that if household income increases there may be increased payments required towards the arrangement.

In those circumstances, the debtor feels that he is still under supervision and not free to start again.

While it is true that where a PIA or DSA provides for payments over 5 or 6 years there are annual reviews, the arrangement can define what will happen in the review.

For example, it could provide that the first increase does not alter the payments and thereafter, where income increases beyond an amount, an agreed portion of that increase will be used towards increased payments. We have seen cases where it has been agreed that an increase of up to €500 per month will not change the terms of the agreement and thereafter 50% of any increase will be used towards increased payments.

These types of arrangements give the debtor an incentive to increase income while at the same time being fair to creditors who have taken a large debt write down.

It is also the case that many people’s income is unlikely to change dramatically. In cases where people are in employment it is relatively easy to determine income into the future. In those circumstances, the debtor really sees the payments as an affordable loan payment which will end in a defined period of time.

All this being said, it is always better, where possible, to agree a lump sum amount so that the arrangement comes to an end quickly and the debtor is free to move on unhindered by past debts. The lump sum could be sourced from family or friends and could be repaid over time.

Where lump sum deals are involved it is generally expected that the monies are paid within 6 months of the arrangement coming into force. But once the payment is made the remaining debt is written off in full.

When determining the amount of the payments or the lump sum regard is had to the Insolvency Service’s guidelines on Reasonable Expenditure needs. Information on these amounts can be found on the ISI website.

The amount is dependent on the composition of the family but taking a family of 2 adults and 3 children the system would say that the minimum reasonable expenditure needs of the home are €2700 plus mortgage or rent costs. This would increase where extra costs are involved such as child care or medical expenses. Assuming mortgage costs for this family to be €1500 the after-tax income would need to be €4200 before any other debt is paid. Any amount over and above this would constitute the basis for calculation of payments.

Where anybody is in mortgage arrears of where debt presents a difficulty, they should meet with an expert and learn about the options that are available.

3 Money Saving Tips and Tricks

As we enter the summer months, the evenings are long and holidays are close at hand it is often hard to pay any attention to your finances. And rightly so, I am a big believer in taking time to recharge if at all possible.

So, with one eye on summer holidays I decided to highlight just 3 simple money saving tips that all of us can utilise that we often overlook.

1. Tax

So, for anyone who pays tax there are some tax savings tips which we can use to reduce or save tax. We can also claim tax back for the last 4 years, so if any off the below relates to you then you can claim back to 2013 and get a refund from the revenue for all the years since.

a. Did you get married? – If you did get married then you can mix and match your tax credits and high rate tax cut off points, so if either you or your spouse is earning less than €32,800 and the other is earning more than €32,800 then you can adjust your credits and/or bands and reduce your tax bill.
b. Medical and Dental Expenses can still be used to reduce your tax bill. You get 20% of the value of your expenses refunded to you if you submit a medical expense’s return to the revenue.
c. EIIS Investments – These are investments that qualify for 40% tax relief over 4 years. Rental Income and ARF Income can used here too making this type of investment very attractive for anyone with rental/pension income. Tax relief is claimed at 30% in year 1 and 10% in year 4. So, an investment of €20k for example only costs an investor €12k once the tax relief is factored in.

2. Insurances Costs

The costs associated with your mortgage protection and your life insurance policies should be reviewed, and we are happy to help in this regard as we have access to all the providers costing in Ireland.

The insider knowledge here is that these providers want more business. To attract more business, they try to either improve their product or reduce their price. For example, Zurich, Royal London and Aviva are offering discounts on their protection products and these discounts are deducted from the cheapest premium available on the market.

If you took out your mortgage protection, life insurance or serious Illness cover with your bank its very likely we could save you money every month going forward.

3. Pensions

Pensions, yes you have heard me bang this drum before, but they do make a whole lot of sense and they do save you a whole of money!

Pensions still allow for generous tax relief at your highest rate of tax so either 20% or 40%. Over a career not only will a pension save you a small fortune in tax that you otherwise would have had to paid to the revenue but it saves it for a time when you will need it most, when you stop earning an income!

Pension can be paid monthly or indeed can be paid as a lump sum and against last year’s tax bill so there are no excuses, pensions just make sense.

If you need help with any of the above please feel free to get in touch. As always, we will be happy to help if we can.

You’ll get me on nick.lawlor@newbeginning.ie or call Kathy on 01 531 0571.

Chat soon,
Nick

Opportunities to Refinance

New Beginning Funding’s ongoing market analysis shows the high demand for commercial property, SME and development funding as the trend of overseas funds seeking liquidation or refinancing of distressed portfolios is continuing.

We are also seeing a marked increase in the number of commercial borrowers seeking funding for regular commercial property acquisition. Available funding is still targeting transactions in excess of €1m in main urban centres, and options for smaller, non-central, transactions remain scarce.

Funding for SME’s remains difficult to source but New Beginning Funding is in contact with pillar Banks and there does seem to be a growing appetite to fund into the SME sector, including operating businesses.

New Beginning are happy to discuss your requirements and suggest funding options and best ways to approach potential funders.

At New Beginning Funding we have developed strong relationships with a number of key lenders across the market and our funding facilitation services offers commercial borrowers a bespoke service which sources the best funding options, with transactions individually structured to offer most value to prospective borrowers.

We can source funding commitments, based on the specific needs of the borrower, in a matter of days. This means that clients avoid being forced to sell their properties, and with the assistance of New Beginning Funding, can access individual loan structures which are sustainable over the longer term.

New Beginning Funding is looking to assist individuals with borrowing requirements of over €1m in sourcing a range of funding options, including refinancing, to enable settlement of stressed exposures. We are also happy to discuss borrowing requirements with SME’s and can source a broad range of funding options, including, term loans, bridging and mezzanine facilities, development financing and larger commercial facilities.

You can email me at john.ryan@newbeginning.ie or call me on 01-5240000 to discuss options that might be of help to you.