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.

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!

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.

4 Ways to Deal with Unmanageable Debt

overview of desk with calculator and 4 hands

Being in debt is not an ideal situation for anyone. However, the best way you can help yourself is to be informed about debt management solutions. This article will help you understand 4 options for managing your debt.

The  4 ways in which to deal with unmanageable debt are:

1. Leave matters alone
2. Direct negotiation
3. Personal Insolvency
4. Bankruptcy

When a client comes to New Beginning we assess their circumstances and advise which of these options is best.

In many ways, they follow a sequence.

In other words, where doing nothing is not an option we look to direct negotiation. Where that is not working, we look to Personal Insolvency and finally if nothing else works there is the option of bankruptcy.

Doing nothing may seem a poor option though in some cases it is best advice – either in the short of medium term. Once people understand the laws and systems around debt they can move on with their lives, even if the actual problem has not been fully resolved.

Direct negotiation has its ups and downs and depends on the type of debt and the lenders involved. We deal a lot with the funds who can be very reasonable or very aggressive depending on who is behind the debt and the position it is adopting at that point in time. Often funds will make silly demands which need to be treated with a certain contempt. 6 months later when the fire has gone out a better deal can be struck.

Personal Insolvency is a very powerful tool – especially for homeowners. The law now provides that a Court can enforce a deal on a bank or fund where a home is concerned.

Bankruptcy is the final option and must be approached with caution. Professional advice should always be taken before seeking an adjudication in bankruptcy across a whole range of areas. We have come across cases where people have been adjudicated and have some very unpleasant surprises that could have been avoided if proper advice had been taken.

New Beginning is the only entity in Ireland that can provide all solutions.

We are licensed by the Central Bank to engage in direct negotiation with creditors. Since 2013 anybody providing this service needs a licence and the licence means that certain standards will always be maintained. For example, all of our advisers are fully qualified to the standards demanded by the Central Bank. It is interesting that many people offering such services are not qualified and this puts borrowers at great disadvantage.

New Beginning has its own Personal Insolvency Practitioners and we also partner with a larger firm of Personal Insolvency Practitioners to ensure that our clients get the best service possible.

Finally, we have lawyers and experts available to bring clients through the bankruptcy process where that is necessary.

In addition to all this New Beginning Financial Services have experts in pension law to advise people on the best protection measures available to gain best benefit from the laws that protect pensions in insolvency and bankruptcy.

At New Beginning, we now offer funding services for our commercial clients and we are ramping up our Mortgage to Rent offering over the coming months.

For more information on us and our services and how we could help you call us on 01-5240000 or email us on info@newbeginning.ie