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


Personal Insolvency guidelines Launched

Last week we saw the official launch of the Insolvency Service of Ireland which included the new web site www.isi.gov.ie, ISI information line, guides to the three types of insolvency, guidelines on reasonable standard of living, expenses for insolvent debtors and limited information on authorisation and regulation of insolvency practitioners.
The living expenses guidelines have been widely leaked over the past few weeks as I have previously written there are no significant changes from the leaked details. However, emphasis has been stressed on the flexibility of the guidelines based on the personal and family circumstances of the Debtor. There is a section in the guidelines, which discusses “special circumstances” which may apply to a debtor when the PIP is assessing reasonable expenses. Such special circumstances could apply to someone who has an elderly relative living with them.

Clarification of the allow ability of childcare expenses was given after the recent leaks. As Enda Kenny recently said in the Dail there is no question of childcare expenses not being allowed for a person applying for an insolvency arrangement. Minister Shatter confirmed this today at the launch and denied any political pressure to change that particular section.

The website includes examples of the three types of debt settlement – Debt Relief Certificate, (DRC), Debt Settlement Arrangement (DSA) and http://www.isi.gov.ie/en/ISI/Pages/PIA (PIA).

In one of the examples it is suggested that a debtor would receive a write off of 40% of a home loan whilst keeping the home. When I asked the minister about this and his confidence that banks would agree to such an agreement he assured me that banks would fall into line, that they will work the legalisation and he himself will be keeping a watchful brief on what they are doing.

The guidelines on Reasonable Living Expenses (RLE) address the issue of what are reasonable expenses when assessing a debtor’s disposable income. This will determine what they will be able to pay to creditors for the duration of the agreement. There is little change to the expense levels, which have already been discussed in previous articles here by myself and others. The head of ISI Lorcan O’Connor was at pains to point it that the guidelines for reasonable expenses are just that, guidelines to assess what people can afford to pay creditors. There is no question of expenses being micro managed as this is in nobody’s interest.
The launch included for the first time limited information on who will qualify to be a Personal Insolvency Practitioner (PIP), how they will become authorised and what regulation they will be subject too. There is a provision in the Act that all practitioners must have an indemnity bond in place of €600,000 to protect debtors and creditors from malpractice by the PIP.

However, these details have yet to be finalised. The PIP will also have to have experience in insolvency and will have to complete an exam in the insolvency process. A potential shortage of such suitably qualified professionals may be an issue in the short term.

It is clear that from the outset of this process the PIP is going to be a vital part of this process and will have significant input into the success of any arrangement and the overall success of the insolvency service.

Throughout the launch both Minister Shatter and Lorcan O’Connor were at pains to point out that the insolvency process is about putting people back into a solvent position in a fair, flexible and equitable way.
So the information and guidelines have finally arrived now it is time for the real work to begin and for the ISI to get up and running. It was confirmed that the ISI will be up and running at the end of June and they will have appointed the first PIPS at the beginning of June. Let’s hope they are ready to cope with the inevitable rush of debtors they are going to be faced with for the foreseeable future!

For those who have been suffering from this financial cancer there is now light at the end of the tunnel even if the light is up to 6 years away. The shame of all this is that if the problem was addressed appropriately 5 years ago people would at this stage be out of the process and who knows how our economy would have recovered by now.