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.

Post Retirement Options and Debt

post-retirement couple assessing their finances

When you approaches retirement there are serious decisions to make. The choices you make at retirement can have lasting effects on your pension savings and how you can access them into retirement.

The drawdown options available to you at retirement can be complicated even more by having a mortgage debt issue which needs to be resolved. So allow me explain where this can get complicated.

TAX FREE CASH VERSUS ANNUITY

If you are entering an insolvency or bankruptcy process you must fill out a Standard Financial Statement that lists your assets and your incomes.

Assets are typically at serious risk of being used to pay creditors before any deal is done or be lost to the Official Assignee if entering a bankruptcy process. Income however is allowable to a certain level.

So when you are deciding between having accessible cash or an income for life the decision of which to choose is likely to be very different should you be considering a debt process. You will need to seek advice if you are approaching this juncture.

AMRF VS ARF

An AMRF is a retirement pot which is locked away until a client reaches 75, unless they show they have a guaranteed income for life in excess of €12,700 (currently). The first €63,500 of a client retirement assets after the lump sum is taken must be invested in an AMRF if they do not have this guaranteed level of income. An ARF on the other hand is fully accessible to the clients and can be drawn down at short notice.

The rules surrounding AMRF’s have changed recently. Previously you could access any amount over the €63500 so any growth or interest earned could be taken subject to tax. Now a client can only take 4% per annum regardless of the AMRF’s value.

So how does this affect clients entering a debt process? Often clients would like access to their AMRF to help them pay down their debts but believe they can’t have access to it. This is true but an AMRF can be turned into an ARF if a client can satisfy one rule and that is if they can show a guaranteed income for life in excess of €12,700. Often a client will be in receipt of the Old Age pension from the state of circa €12000. So all a client needs to do to convert their AMRF into an accessible ARF is to buy a small annuity which will deliver income of €700 per annum. Crucially this will unlock the remaining AMRF allowing them access to their funds which can then be used to address short term needs.

CONCLUSION

These are just 2 of the many pension related situations we come across everyday so please just get in touch with me directly if you have any pension related questions that are concerning you.

Now for the disclaimer. Pensions are very complicated and each individual case should be assessed on its own merits. The rules are there to be applied and used for each of us so please take advice on your situation before making any lasting decisions. Finally if you are considering entering a debt negotiation or process please consider your pensions assets and what form they are in. Your pension assets could be at risk of being lost against your wishes or indeed could be used to help you address your debt but pension planning in advance is vital.

If you would like to discuss your own situation, please feel free to get in touch with me directly on email on nick.lawlor@newbeginning.ie or contact the office on 01-5240000 and I would be happy to look at your situation to find out.