Archive for the ‘Bankruptcy’ Category

What happens to the family home if you become insolvent?

March 10, 2015

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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Is the new personal insolvency legislation working?

May 22, 2014

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After a slow start we are starting to see some progress with the new insolvency arrangements (DRN/DSA & PIA) and also with the changes to the bankruptcy legislation.

The Insolvency Service of Ireland (ISI) recently issued their 1st quarterly report which showed mixed results. Since the ISI began accepting applications for the new personal insolvency arrangements 7 months ago, there have only been 55 schemes of arrangement approved by creditors (DRN 44/DSA 7/PIA 4).

Although the Debt Settlement Arrangement (DSA) scheme is working, only 7 have been approved and the average write down was 77%.The DSA scheme is for those debtors with unsecured debts of more than € 20,000 in total.

The scheme that is under the microscope is the Personal Insolvency Arrangements (PIA) which deals with the write down of secured (mortgages etc.) and unsecured debts. To date there have only been 4 PIA arrangements approved and the average write down was 19%.

To date, the Courts have issued 70 protective certificates to debtors. A protective certificate protects a debtor and their assets from their creditors, while the Personal Insolvency Practitioner (PIP) formulates a proposal for a DSA or a PIA. A protective certificate remains in force for 70 days, but may be extended in certain circumstances.

A PIPs role is to act as a referee/mediator between the parties and a PIP is committed to ensuring that where possible they will assist those with unsustainable debt return to solvency over a period of 5 to 6 years. There are currently circa. 130 individuals licensed to act as PIPs in the Republic of Ireland.

Since the ISI went live on the 9th September 2013 there has been over 500 new applications for a scheme of arrangement (DRN 82/DSA 121/PIA 320), representing almost 600 individual debtors, with 50 new applications being made to the ISI on a weekly basis so this seems to be progressing well.

New Protocol being developed

The ISI have recently set up a working group to develop a protocol between debtors, creditors and practitioners to streamline the process for DSA and PIA arrangements. This working group is initially dealing with the DSA protocol which will probably bring this scheme in line with the comparable IVA scheme in the UK. The introduction of protocols for DSA’s & PIA’s should assist in increasing the number of applications being approved by creditors.

What happens in Bankruptcy?

The position in bankruptcy is that once a debtor is adjudicated as a bankrupt all debts are written off but unfortunately the debtor loses all of their assets including their share of the family home.

In December 2013 the term for bankruptcy was reduced from 12 years to 3 years. As part of the bankruptcy proceedings the Official Assignee can apply for a payments order which could result in the bankrupt individual having to make a contribution to their creditors on a monthly basis for 5 years. In my opinion this period should be brought in line with the bankruptcy term and reduced from 5 to 3 years.

As part of the recent ISI report they noted that there were 66 bankruptcy cases to the 31st March 2014. This was in excess of the number of bankruptcies which took place on an annual basis in either of 2011 (33), 2012 (35) and 2013 (58). The total debt involved in bankruptcy adjudications in the first quarter of this year was almost €136 million.

ISI Quarterly Statistics Reports & Transparency

One of the main positives to the above statistics from the ISI is the level of transparency on the new legislation and the fact that the data is in the public domain. The ISI will be reporting on a quarterly basis so we will all get to see what is happening in this space and the progress that is being made. The feeling on the ground is that the number of applications to the ISI has increased significantly in the last number of months and the process is beginning to speed up as all the various stakeholders get more familiar with the systems and the legislation.

Creditor’s responsibility to their Shareholders

It mustn’t be forgotten that the leaders within the major financial institutions have a responsibility to their shareholders to ensure that they get the best return on the loans that they have and which they will provide in the future. In the majority of cases a personal insolvency arrangement (DSA or PIA) will give a better return to the creditor than forcing a debtor into bankruptcy, as in most bankruptcy cases the creditors will get nothing.

As part of a DSA/PIA proposal a PIP will provide the creditors with a comparison of the return they will make compared to under the bankruptcy process. In all cases the new personal insolvency legislation is a better alternative to bankruptcy for both parties.

What does the future hold for the new insolvency legislation?

The experience in the UK which has similar insolvency legislation is that it will take some time for the system to be fully functional. It will take all stakeholders in the process to act in good faith for the system to work. This involves all parties to the agreements Debtors-Creditors-Courts-ISI working together.

The 2nd quarterly report by the ISI which should be published in early July 2014 will make interesting reading and I would expect a fast response from government if the DSA/PIA scheme has not improved the number of cases being approved.

Unfortunately the start of the process hasn’t been as smooth as we would have liked but there are now 55 individuals who have started on the road to solvency. There maybe a few bumps on the road over the next 5/6 years for these individuals but at last there is a chink of light at the end of the tunnel.

Regards

Mark Ryan CPA

Personal Insolvency Practitioner (PIP)