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