What happens to the family home if you become insolvent?

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Family Home

This is probably the 1st question I get asked in my initial meeting with a client. The answer isn’t that simple as there are various options depending on the client and the debt involved.

There are a number of methods of dealing with debt on the family home but the main ways would be informal restructure through discussions with your bank under the MARP (Mortgage Arrears Resolution Programme), formal agreement under the new personal insolvency legislation or the final act which is bankruptcy. The banks must apply the conditions of MARP in all cases involving the family home.

None of the above options are to be feared but if you are unsure of your own position I would suggest that you contact someone to find out as you might find that it may not be as bad as you think.

Sometimes finding out what is the worst case scenario and then leaving it to a professional to negotiate on your behalf can instantly take the stress out of the situation.

Prior to the enacting of the new personal insolvency legislation there were only 2 options to manage the debt with a family home either you could reach an informal agreement with the bank or you couldn’t and the property was repossessed or sold and you still remained liable for any net residual debt that remained after the property

A core protection of the new personal insolvency legislation is that a PIP’s (Personal Insolvency Practitioner) role is to where possible keep a family in their home. This is one of the key protections of the legislation and there are a number of options involved which would include a write-down on the debt to a more sustainable level under a PIA (Personal Insolvency Arrangement). Any proposed write-down would be subject to agreement by the creditors at a creditors meeting.

The main disadvantage in bankruptcy as regards the family home is that all assets of the bankrupt are transferred to the OA (Official Assignee) who in turn can sell same to pay off some of the debts due to the creditors.

It is important to understand that all is not lost if you or you partner are bankrupt. Under the legislation there are a number of options where only one of the parties to the home loan is bankrupt. For example if there was positive equity in the family home the OA would look to realise their share (50%) of this equity. If the home loan is in negative equity the OA may not be interested in the loan and may accept a nominal fee to transfer their interest in the property to the spouse/partner of the bankrupt.

If both parties to the mortgage are bankrupt it becomes a little more difficult but there are still options available to the individuals. It is important to note that the OA cannot sell the family home without first obtaining permission from the High Court.

I would suggest that if you are concerned at anytime about your personal debts you should contact a PIP to see what your options are and you may find out that these options are not as bad as you though. This could result in some light at the end of the tunnel after what can only be considered as a very difficult dark period over the last 5/6 years as the economy was hammered during the economic crisis.

As the economy in Ireland starts to improve it is well time that those in personal debt get the opportunity to get themselves back on their feet and on the road to solvency.

Mark Ryan, Quintas PIP

Quintas are currently running FREE Debt Resolution Open Evenings on Wednesdays.  If you would like to make an enquiry or find out more contact us on info@quintas.ie or call 021 4641400.

Mark Ryan is authorised by the Insolvency Service of Ireland to carry on practice as a personal insolvency practitioner.

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