Bankruptcy is proving popular for a fresh start


All of our 20 clients who have gone through the bankruptcy process since the beginning of 2014 have expressed delight with their new found debt freedom.

Assignee meetings

After a few initial hiccups with bank accounts all has been plain sailing. Assignee meetings have take place for some of the people which have been conducted in a very professional and understanding manner by the ISI bankruptcy staff. These meetings have been very straight forward with all of the necessary information being supplied to the ISI by NEO Financial prior to the meeting making the meeting as short and painless as possible. There has been some emotion and tears both expressions of relief that the debt stress is now over!

Family Homes

Some people have already sold their family home so for them there has been on issue regarding trying to keep the family home. However, any negative equity remaining after the sale of the family home is now gone.

For those who wish to keep the family home that has not been a problem for the clients who are in this position. They were given clear advice on the process and the fact that they were able to keep up any mortgage payments has been vital in the process. There was no equity in the family homes that are being retained and so the assignee has no interest in confirming his interest in the home. Arrangements are being made to have the assignees interest passed back to the owners with legal fees having to be paid for the paperwork to be completed.

Income

For all of the clients who were made bankrupt their income was less than the reasonable living expenses guidelines as outlined by the ISI for families of their size and make up so there is no question of any payment order being made and unless there is a very significant change in circumstances there will be no such payment order during the 3 years in bankruptcy.

It has been important for us to point out to clients that eh bankruptcy period is 3 years and not 5 as some opponents to bankruptcy keep pointing out. The period can be extended if the circumstances permit. These circumstances are limited in nature and would not apply to many people.

Independent Advice

I cannot stress how important independent advice and plenty of knowledge is the key to a successful debt resolution process. And in a lot of cases solutions like PIA or DSA extending over 5-7 years are not practical nor in the interest of the Debtor and therefore should be avoided.

Liberation

Bankruptcy can be and has been for many this year already the liberator they are looking for. It can be liberation from the shackles of debt, banks, unscrupulous debt collection agencies and solicitors. The bankruptcy process and the assignee is there to assist the debtor and keep unscrupulous creditors away from the debtors. Once a client enters bankruptcy the creditors are not allowed to contact the debt and protection is in place. This alone, for many debtors has been a relief and stress reliever.

 

Paul C Carroll

Bankruptcy and Insolvency Partner

NEO Financial

www.NEOFinancial.ie

Phone: 01 437 0908

 

Insolvency Guide on Amazon


insolvency uncovered kindlePaul Carroll’s top-rated easy to understand guide to Personal Insolvency is now available on Amazon: http://www.amazon.com/Guide-Personal-Insolvency-Ireland-ebook/dp/B00DVJLPME.

Revised Code of Conduct on Mortgage Arrears ………….. Could be an opportunity to Borrowers to stand up to the Bankers and do a Mr. Drumm on it with keys rattling in your pocket!


Once again a government agency (the Central Bank) seems to give in to banking pressure by updating the code of conduct for dealing with mortgage arrears seemingly in the banks favour. This, in a week when we have been subject to hearing the arrogance of the same bankers when they themselves were facing ruin.

However, maybe it is time that the people of Ireland who have mortgage difficulties (some 145,000 of them or almost 25% of the mortgage holders in Ireland). use this change in code and face down the bankers who are going to be calling and contacting people more directly and more often?

Tell them as it is, that if they do not do a deal with you that you will be doing exactly what Mr. Drumm (and I have not doubt all other bankers threatened) and throw the keys back at them! And just look at what that threat got them, €64billion and counting.

Troubled mortgage holders have just been too nice about this mess. They find themselves in difficulties because the bankers were greedy and dished out money like it was free. Making up any kind of product so they could give people more money than they could ever afford to pay back. This was not because they were nice people or because they wanted to see everybody own their own home…. It was because they were making money and lots of it! And they still are greedy and need to be thought a lesson.

Bankers created interest only loans, low tracker mortgages, 110% mortgages, etc all of which the people of Ireland are saddled with. Well it is now time to hand them back to the bankers, tell them how it is you are not paying any more unless they are willing to share the pain. As Mr. Drumm said let them have some skin in the game or they can have the keys!

The implementation of the new insolvency legalisation and the updating of the bankruptcy laws mean that people can walk away. In doing so most people will see very little effect on their lives and possibly see a major improvement in their health without the stress of being kept down with massive debt. The banks know this and are scared that people will begin to stand up to them.

 

Paul C Caroll

Personal Insolvency Survey Results


The results of the Personal Insolvency Survey provide a good insight into people’s perceptions of the new insolvency process.  Information and trust are basic requirements for any system to work and it seems that both the banks and government are failing in this regard regarding the new personal Insolvency processes becoming available to people shortly.

Information Gap

enough_informationThe survey has given a clear indication that there is a significant information gap about the insolvency process.  79% of people surveyed said there was not enough clear information on the insolvency process. This reflects the fact that though there has been patchy media coverage and specifically very little comprehensive explanation of not only the process of insolvency but the specific outcomes for people. Banks have insisted that each case is different and needs to be dealt with individually. This is in fact incorrect. Most insolvency cases are the same involving home and buy to let mortgage difficulties which need significant write down. There may or may not be additional unsecured loans which have to be dealt with as well. That type of case will account for over 95% of cases.

Also another information gap has been the total lack of any updated information from the Insolvency Service of Ireland. Since its launch in April their web site has not had one single update! This is not very comforting for the thousands of people waiting on the opening of the service.

Family Home Protection

The corner stone of the Personal Insolvency Arrangement is the protection of the family home and over 54% of the people surveyed were not aware of the protection for the family home. This is a major information gap which needs to be filled without delay. This is information the lenders will not wish to publicise but which needs to be given in order for people to understand properly their options.

Trust

trustTrust is an issue for both government and banks on the implementation of the insolvency process. 88% of people indicated they did not trust the banks to engage with the process. A shocking reflection on people’s current experiences with the banks who say they are engages and it is people who are not! The banks have a long task ahead of them if they are to convince people to enter into voluntary arrangements with them as they are currently advertising.

Public register

There has been a significant out cry about the public register with good reason but the results in our survey surprised me.  My experience has been that most people are not too worried about the register as they consider it part of the pain they are taking for their part in not being able to pay their way. However, over 71% of people have indicated that they would be deterred from the insolvency process because of the existence of a public register.

To get over this issue I think the ISI should introduce a charge of €50 for accessing the register which will ensure only people who need to access the information will do so.

High loan repayment levels

The survey showed that over 71% of peoples mortgage repayments were over 35% of their net monthly income. This reflects the fact that people are still very much over borrowed and not being able to partake in the normal activities of an economy because they are paying too much in loan repayments. This is a very worrying fact since there are large numbers of people on interest only loans as well as very low trackers. If interest rates begin to rise and interest only periods end there will be more trouble ahead for both lenders and borrowers.

Personal Insolvency Survey – Press Release


press_releaseResults of the survey “Getting a clearer understanding of people’s perceptions on the Personal Insolvency Act” announced.

Click the image to download the Press Release.

TV3 – Midweek


Central Bank New Debt Resolution Plan


The Central Bank’s new plan for assisting distressed borrowers to get out from under their excessive household debt is, if it works, a welcome addition to the growing (though still largely unimplemented) suggested solutions to the debt cancer that has riddled households throughout the country.

The pilot plan is mainly focused on those who will not qualify for the new Personal Insolvency legalisation because they are not insolvent although they may be having difficulties paying their loans. This would typically include someone who has a home mortgage but not in negative equity and have some other unsecured loans such as credit union loans, credit card debts and/or term loans.

The new pilot plan will, with the assistance of a service provider (SP), bring the lenders together and agree a temporary restructuring of the payments, term and sometimes interest rates on all loans to bring the payments down to a manageable level until such time as the Debtors situation has improved or the loans are cleared. However, the new plan does not envisage any significant write offs of loans and any small write offs of debt will only apply to unsecured debt.

In fact of the 8 scenarios outlined in the debt resolutions “waterfall” in the Framework for a Pilot Approach to the Co-ordinated Resolution of Multiple Debts owed by a Distressed Borrower there is only 1 scenario which envisages any possibility of a debt write down. All of the other scenarios include restructuring however there is interest being charged on all debt of between 4.5% and 9% depending on the debt and level of distress. This is hardly a good deal for the borrower …. as usual!

The level and type of debt that currently exists in households throughout the nation would suggest that this new plan is not going to be a significant problem solver. It will address some small limited cases but not the vast majority of cases where nothing but significant write downs of home loans will provide a solution for the majority of debtors struggling to survive never mind pay their unsecured loans.

The new plan is an indication again that the banks are being pushed slowly towards the cliff of debt forgiveness. Eventually they are going to have to take that leap which will mean that their recapitalisation will happen as discussed in the recent IMF report. This re capitalisation which will be funded by the ECB (not the Irish tax payer) but will have a direct and positive impact on the taxpayer unlike the previous bank bailout which crippled us.

So it looks like we are back to the personal insolvency legalisation and personal insolvency practitioners to get the solutions for people in real distress with their debts. This is where the resolution is and hopefully the insolvency service will be up and running in June as promised so people can finally get long term resolution to their debt problems. And be assured the long term solutions will include significant write off of debts!

 

Paul C Carroll FCCA

Personal Insolvency Partner

NEO Financial Solutions

paul.carroll@neofinancialsolutions.com

Insolvency Guide Updated


Updated Insolvency Guide Released

The first version of Paul’s Guide to Personal Insolvency in Ireland had over 1,000 downloads within 2 days of publication.  Feedback was excellent, and has led to a review and some clarification on a number of issues.  Paul has now released an update to the publication which is available for download to registered users – please complete the short form below and you will be sent a link for direct download.  Registered users will be notified of any significant changes.

Sunday Times Money: Finding a way back to black


sunday times

As the launch of the insolvency service draws near, specialists look at scenarios that debtors may face

Niall Brady, Sunday Times –  Published: 28 April 2013

Debtors must wait until the Insolvency Service of Ireland (ISI) opens for business at the end of June to discover the extent of debt relief that will be available from banks and other creditors.

Debt experts are studying how the proposed insolvency regime will operate, to ascertain how unsustainable debts will be treated.

We asked two debt experts, Paul Carroll of Neo Financial Solutions and Steve Tennant of Grant Thornton Debt Solutions, for their opinions of what our sample debtor might expect from the new system.

The sample debtors

Peter and Alice had a family retail business and in 2004 they decided to move house, taking advantage of the strength of their thriving business. They sold their old home and, with a new mortgage of €500,000, they bought a new home for €1m.

By 2009 their business was struggling. It had run up a €70,000 overdraft and owed €30,000 in unpaid taxes to Revenue. The couple’s bank wanted to convert the overdraft into a term loan of €100,000, giving them enough to pay the Revenue arrears.

The bank insisted that Peter and Alice gave personal guarantees to secure the loan. After 18 months the business failed, leaving Peter and Alice owing €100,000 to the bank and €100,000 to creditors, which they had also personally guaranteed. The couple have unsecured debts of €25,000, comprising a credit union loan of €15,000 and credit card borrowings of €10,000.

Since the business folded, Peter and Alice have secured employment. They earn a combined income of €6,200 a month after tax and including child benefit for their children, aged 10 and 16. They have taken steps to reduce spending.

They are unable to pay their mortgage and contribute very little towards their other debts. The value of their home has fallen to €300,000, putting it into negative equity.

At their current debt levels, there is no chance of reaching an agreement with creditors that would be sustainable in the long term. Peter and Alice decide to investigate their options under the new Personal Insolvency Act.

Our experts recommended two different approaches to the debt problem.

Carroll suggested a personal insolvency arrangement (PIA), designed for secured and unsecured debts. This would result in a write off of €303,000 of the debts. Without debt forgiveness on this scale, Carroll believes bankruptcy might be the best option for our sample debtor, even though this would result in the loss of their home.

Tennant believed a debt settlement arrangement (DSA) would be the most likely outcome. DSAs are for unsecured debts only, although they could be used to deal with shortfalls that will result when debtors agree to voluntarily restructure their mortgages with banks.

Under this scenario, only €150,120 of the debtor’s borrowings would be written off.

The extent of debt write-offs will depend on the level of repayments made during the insolvency process, five years for a DSA, up to six years for a PIA. Agreeing these repayments will depend on the allowance made for reasonable living expenses while in the insolvency process.

Paul Carroll: personal insolvency arrangement

As they have secured mortgage debt and unsecured debt (the term loan, business creditors, credit union and credit card debt), a PIA is appropriate for Peter and Alice. It would protect their home while providing a sustainable solution to get rid of their excess debts.

On their income, Peter and Alice could expect to pay 35% of take-home earnings on either rent or a mortgage under an insolvency arrangement. This equates to €2,170 a month, enough to sustain a mortgage of €350,000 over 20 years at current interest rates.

ISI guidelines suggest the family should live on about €5,000 a month, including the revised mortgage of €2,170. Allowance has been made for two cars because they cannot get to work on public transport. The budget also includes private health insurance because Peter has a pre-existing medical condition.

After the mortgage and living expenses, Peter and Alice would have a disposable income of €1,200 a month.

A personal insolvency practitioner would propose that the mortgage be reduced to the sustainable amount of €350,000 — leaving a shortfall of €150,000.

The practitioner would also propose that the borrowings of €200,000 from the failed business and the unsecured debt of €25,000 be written off in full, bringing the total shortfall to €375,000. Under the PIA, Peter and Alice would pay €1,000 a month from their disposable income of €1,200 to their creditors for six years, a total of €72,000. This would reduce the shortfall to €303,000, which would be written off at the end of the PIA.

The payment of €1,000 a month would be distributed to creditors by the insolvency practitioner after the deduction of his fees (expected to be in the region of 15%).

The arrangement would be reviewed annually to take account of exceptional changes in income (a lottery win, an inheritance or redundancy) which might affect the amount Peter and Alice could afford to pay over the course of the PIA.

They would pay the revised mortgage of €350,000 until the end of the loan term. If they sold their home during the PIA for more than the amount owing on the mortgage, the bank could be entitled to up to half of the difference. However, if they delayed the sale until the PIA is complete, there would be no clawback.

Banks have the power to veto a PIA, so why would they accept this deal? Because it leaves them in a better position than if Peter and Alice were forced into bankruptcy. Under this agreement, the banks would receive regular payments for the six years of a PIA, which they would not get if they forced the couple into bankruptcy.

Steve Tennant: debt settlement arrangement

A personal insolvency practitioner would assess the couple’s financial situation and consider their options under the legislation.

It is envisaged the mortgage could be restructured consensually with the bank outside the formal insolvency process.

The unsecured debt that remains after restructuring would be dealt with through a debt settlement arrangement (DSA). The practitioner would set the family’s reasonable living expenses at €2,400 a month after mortgage payments, which would be €250 more than allowed for under the ISI’s guidelines.

The practitioner would contact the bank and agree to split the mortgage, putting €175,000 of the balance on interest-only payments for the five-year term of the DSA. This would reduce the cost of the mortgage to €2,552 a month, a saving of €477 a month.

After paying living expenses and the mortgage from their net income of €6,200 a month, Peter and Alice would have €1,248 left to pay their creditors. Over the five years of a DSA, this would amount to €74,880. At the end of the arrangement, there would be a shortfall of €150,120 of unsecured debt which will be written off in accordance with the legislation.

Repayments of capital would begin on the €175,000 of mortgage debt that was on interest-only for the duration of the DSA, increasing the monthly cost of the mortgage by €711.

Peter and Alice would be better off, however, because the extra mortgage payment would be less than the €1,248 they paid their creditors during the DSA.

For the arrangement to work, 65% of creditors must approve a DSA. This requires the debtor, bank and other business creditors to agree to the proposals.

Paul with Joe Duffy on Liveline


rte-livelineOn Friday 19th April, Paul was back on RTE’s liveline with Joe Duffy.  As the day for the impact of the Personal Insolvency Bill’s implementation comes closer so the concern about what it will really mean for people increases.  Listen to what Paul has to say, and get a clearer idea yourself …

Paul Carroll- liveLine