The Insolvency Service of Ireland (ISI) is raising by 75 per cent the threshold it applies when arranging the forgiveness of unsecured debt from € 20,000 to € 35,000. The move is part of a major overhaul of its dealings with distressed borrowers and the creditors pursuing them. The service’s agents will also attend all home repossession court hearings in the State to provide information to people about to lose their homes.
People with unsecured borrowings of up to €35,000 and little or no assets will now be able to have their debts completely written off without any interference permitted by creditors once they are granted a debt relief notice (DRN) by the ISI. The previous maximum was €20,000. Qualifying applicants will be able to write off debt up to the new maximum once they agree to a three-year supervision period. Applications will continue to be made through approved intermediaries (AI) working under the auspices of the Money Advice and Budgeting Service (MABS).
Unlike other insolvency options available to distressed borrowers – debt settlement arrangements and personal insolvency arrangements (PIAs) – creditors will have no say in whether a notice (DRN) is issued, as long as debtors can prove, with the help of an AI – MABS – that they meet the qualifying criteria. As well as raising the limits for those applying for DRNs, the ISI is also introducing a new programme to ensure that its representatives attend every property repossession court sitting across the State to provide information to people at risk of losing their homes. From next week, ISI staff will attend all court hearings and work alongside MABS to ensure that homeowners who come to court for repossession hearings will have access to information about the insolvency options available to them. The ISI will also put borrowers in contact with personal insolvency practitioners (PIPs). Court proceedings will be adjourned to allow those borrowers to enter into negotiations with banks, through the PIPs, to see what steps, if any, can be taken to allow them to restructure debts and stay in their homes under PIAs.
Such PIA arrangements allow secured debt of up to €3 million and unlimited unsecured debt to be restructured. The PIAs run their course over six years as long as an applicant can make some repayments in return for debt write-off. When the agreed period ends, those with a PIA are discharged from unsecured debts, while secured debt is only discharged to agreed individuals.
The rollout of the new courtroom scheme comes on the back of a successful pilot programme trialed this summer. In one instance, the relationship between a bank and a borrower had broken down and the financial institution objected in court to the intercession of the insolvency authority. However, following discussions, a PIP was appointed to act on behalf of the borrower and a deal was struck which saw a large portion of the mortgage on the property warehoused in virtual perpetuity, allowing the couple in question to service the remainder of the loan and stay in their home. In other cases, borrowers agreed to surrender homes deep in negative equity on the understanding that all outstanding debts associated with the property were written off. Meanwhile, Minister for Justice Frances Fitzgerald is set to give the green light by the end of the month to an oversight or appeals mechanism which will allow borrowers to seek a review in cases where banks try to block applications for personal insolvency arrangements.