With the launch of the ‘Back on Track’ campaign by the Insolvency Service of Ireland (ISI) in October 2014, there has been a significant increase in applications made by people struggling with debt. The ISI is an independent government organisation set up to help sort out personal debt problems.
There is now a range of material online (backontrack.ie) to help you get back on track financially, including information on the ISI’s network of qualified professional advisors who can help protect you from your creditors, or even write off debt that you cannot pay.
Director of the ISI, Lorcan O’Connor explains: “Many people aren’t aware they are insolvent. Most people have debt but if you’re really struggling and can’t pay bills, as they fall due on an ‘ongoing’ basis, then you are more than likely insolvent.”
The ISI offers four solutions for people struggling with debt.
The first, A Debt Relief Notice (DRN) is a notice/order from the court, which states that you are unable to pay your debts as they fall due (to be insolvent). This option is for someone with few assets and debts of less than €20,000. You apply through an Approved Intermediary (AI) such as MABS.
A DRN offers protection from creditors (no more phone calls or letters) and after three years if you have kept to your obligations under the Debt Relief Notice then any of your remaining qualifying debt will be written off.
The second solution is a Debt Settlement Arrangement (DSA). If you have ‘unsecured debt’ such as credit cards, loans and overdrafts, this could be the one for you.
The first step is to meet with a Personal Insolvency Practitioner (PIP). PIPs are specially trained on debt matters and can act for you if you are insolvent offering a proposal to your creditors for either a Debt Settlement Arrangement (DSA) or a Personal Insolvency Arrangement (PIA) under the new Personal Insolvency Act 2012.
“PIPs are there to assess a person’s financial situation and identify how best to solve their financial difficulties,” explains Lorcan.
“Our experience is that many debtors are living on far less than we allow, paying as much as they can off their debts, but often not leaving enough to put food on the table,” says Lorcan. “While making these repayments under an insolvency arrangement, you are entitled to a reasonable standard of living,” he stresses.
The third solution available is a Personal Insolvency Arrangement (PIA). This is solution for people with unmanageable debts including mortgages. A PIA is a formal agreement with all your creditors that will write off some of your unsecured debt and restructure any remaining secured debt.
The final debt solution offered by the ISI is Bankruptcy —a process where the ownership of an insolvent person’s property transfers to the Official Assignee in Bankruptcy to be sold by him for the benefit of those to whom the individual owes debts (creditors).
“10 years ago bankruptcy cost €1500 and you were bankrupt for life,” says Lorcan. “Today it’s €200 and just three years.”
“The vast majority of people are on hard times. Nobody should be ashamed to do what they have to do to return to solvency.”
Alan McGee is a Personal Insolvency Practitioner (PIP) in Cork.
“The first step,” explains Alan “is to establish if the client satisfies the criteria for insolvency. I will then explain the various options available, going through what can and can’t be done. Some may decide insolvency is not for them.”
“If the client decides to go ahead, I will make an application to the Insolvency Service for a protection certificate. When that is issued, the client has 70 days protection from creditors. In that 70 days, we will put a proposal together for the creditors, who will then put it to a vote.”
“Some of the banks are very amenable to a decent proposal and some could be more agreeable,” says Alan.
In the arrangements Alan has successfully made for clients, debts ranging from €800,000 down to €20,000 have been written off.
“In one case, the mortgages on the family home and an investment property were not affordable. We arranged to have the family home mortgage restructured, with all of it being paid and surrendered the investment property to the bank. My client paid a small lump sum towards the residual debt in a 12-month arrangement. This just goes to show what can be done.”
Another case involved a couple with a mortgage on the family home, which was totally unsustainable. “They had a €480,000 mortgage on a property worth €180,000,” says Alan. “The couple had split up so we did the insolvency arrangement for them in tandem with a divorce. They surrendered the house to the bank. She moved out with the kids with no liability to the residual debt because she wasn’t earning enough to pay anything. He moved out and after paying rent, maintenance and his own expenses, he’s contributing an agreed amount per month for six years. The rest of the debt is being written off.”
“There can be a solution. If we put forward a proposal that says we’re doing our best, the bank will engage,” explains Alan.
“Going down the insolvency route takes the pressure at home away. People can get back to their life without spending the whole time worrying about who’s knocking at the door.”
“Your credit rating is already affected — you wouldn’t be going down the insolvency route if you weren’t in trouble. If you go bankrupt your name is on the Bankruptcy Register for life. If you have an insolvency arrangement, your name comes off the register three months after your arrangement has been successfully completed and you can begin rebuilding your credit rating.”
“In the cases that have failed, we have gone for bankruptcy, which is not the end of the world either, as you’re out of it in three years,” he says.
Alan says the process is working. “There has been a substantial growth in applications with numbers doubling in the last quarter of 2014. There are all types of solutions for all types of problems”
Alan charges a fee of €150 plus VAT for the first appointment (he will waive this if necessary).
If you’re experiencing financial difficulty, for more information log on to backontrack.ie, alanmcgee.ie.