Army of Pips set to wage war on Irish debt overhang

On Monday evening, emails began pinging into the inboxes of financial advisers around the country as they received the good news from the Insolvency Service of Ireland that they had been authorised as personal insolvency practitioners (or Pips as they will be more commonly known).

Fourteen had been approved by the close of business yesterday. It is expected that 100 or so will eventually be authorised by Lorcan O’Connor and his 80-strong team in the ISI.

Whether or not this will be enough remains to be seen. David Hall of the Irish Mortgage Holders’ Association warned recently that it could become an “elitist, expensive racket”.

This certainly wasn’t’t the view of two Pips whom I spoke with yesterday. They reckon they’ll earn about €5,000 or €6,000 in total from routine cases that could take up to six years to run their course. Fees for more complex cases might run to €15,000.

Whatever about that, the much-talked about insolvency regime is now finally up and running, although it will probably be another couple of weeks before applications begin to flow in a meaningful way.

It probably should have happened a couple of years ago, but there’s no point in crying over spilt milk.

100,000 in arrears
There's a massive debt overhang in the economy, with more than 100,000 people in some form of arrears with their loans.

The new insolvency regime is designed to help sort this and has three legs. Those with arrears up to €20,000 and with little or no disposable income can seek a debt relief notice, which will involve dealing with an intermediary such as the Money Advice and Budgeting Service.

Those with unsecured debts only go the Pip route via a debt settlement arrangement. Those with secured and unsecured debts up to €3 million can avail of a personal insolvency arrangement, again with the help of a Pip.

If those solutions won’t work for you, then you’ll probably be put on the road to bankruptcy.

There’s no silver bullet to deal with Ireland’s debt problem and it won’t be resolved in short order. Someone availing of a debt settlement arrangement or a personal insolvency arrangement faces up to six years of hardship to put themselves straight with their lenders. It will be no picnic with significant curbs on their day-to-day lifestyles and their names being published on a register.

The ISI is one of a number of solutions the Government and Central Bank are hoping will address the thorny debt issue and help people get back on their feet and return the banks to normalised lending.

Ancient laws
Our ancient bankruptcy laws have finally been amended, reducing the term from 12 to three years, while the Central Bank is running a pilot scheme with lenders for those with secured and unsecured debt but who want to stay out of the insolvency process. And there will be quiet a few of those.

First, most people genuinely want to repay their debts or at least make the best stab they can.

Most will also want to avoid the stigma of personal insolvency or bankruptcy, which can be hard to shake off in a small country like Ireland. Especially when your name has been put up in lights

Ciarán Phelan, chief executive of the Irish Brokers Association, said yesterday that the personal insolvency option is "particularly welcome" as there has been too much short-termism by the banks in dealing with the debt issue and "case-by-case paper shuffling" with very few resolutions actually being agreed.

He has a point, although the banks were hamstrung to a degree by the effect of the Dunne legislation on their ability to repossess properties and the outdated bankruptcy laws.

Banks have also been loath to do anything that might chip away at their capital and require them to raise yet more funds from Irish taxpayers, who have already handed over €64 billion to the financial system since 2008.

It is estimated up to 15,000 people will avail of the debt settlement and personal insolvency arrangement in year one, with another 4,500 for debt relief and about 3,000 bankruptcy petitions.

Bankruptcy petitions here usually number between 15 and 25 a year, so the courts will be busy if that particular forecast comes through.

Painful remedy
Be under no illusions, availing of the insolvency or bankruptcy regimes will be painful for borrowers.

Being told by a Pip that these are the routes you need to go is akin to a patient getting a bad diagnosis from a doctor. Mentally, it will be difficult to process and there will be a lot pain involved to put it right.

Hopefully, with the right treatment, borrowers can come out the other side and get on with their lives again. Only then will the patient – the sickly Irish economy – be cured.