Number of Insolvency Service solutions for indebted up 70%

The number of permanent solutions reached between heavily indebted borrowers and their lenders through the Insolvency Service of Ireland (ISI) increased by 70 per cent last year.

The rise has been welcomed by the service but the figures have been dismissed as “disingenuous spin” by critics who insist the regieme is “not fit for purpose”.

The numbers using the ISI to free themselves from debts they can no longer repay has risen sharply since 2014 but represents less than 1 per cent of those who are in mortgage distress. The rate at which Irish banks reject insolvency applications remains relatively high compared to that in the UK.

Last year a total of 641 Personal Insolvency Arrangements were concluded dealing with €77million of mortgage debt. This represents 0.66 per cent of the total number of accounts in arrears and just 1.2 per cent of accounts in arrears for two years or more

Long-term deals

All told, 1,700 people agreed long-term deals with banks in 2015 while the numbers using the services of the ISI jumped by 18 per cent over the last three months of the year.

The rise in usage is largely down to major changes to the legislation which shortened the bankruptcy period, raised the debt ceilings in some cases and saw a bank veto substantially weakened.

Of the deals done last year 479 were bankruptcies, 641 involved Personal Insolvency Arrangements (PIA), 221 Debt Settlement Arrangements (DSA) and 346 Debt Relief Notices (DRNs).

In the last quarter, the average debt-write off on mortgages as part of a PIA was just under 17 per cent although almost 70 per cent of cases saw no debt write off at all. The average write off of unsecured debt was slightly over 82 per cent.

Rejected

In the last quarter of the year, more than 26 per cent of deals were rejected by banks. Vulture funds and sub-prime lenders were most likely to reject deals while Permenant TSB and Bank of Ireland had the highest number of rejections among the main banks.

Lorcan O’Connor, director of the service, welcomed the fact that “the number of people availing of the debt solutions available through the ISI continues to grow”.

He pointed to the increase in the DRN threshold to €35,000; the extension of the waiver of all ISI fees; the introduction of a court review of rejected Personal Insolvency Arrangements involving the family home and the reduction of the normal duration of bankruptcy to one year.

The Irish Mortgage Holders Association said that against a backdrop of over €4billion in arrears outstanding across family homes and investment properties, “the cheerleaders of the Insolvency Service cannot continue to rely on spin to mask what is now a critical repossession and housing crisis.”

‘Depressing’

Association chief executive David Hall said it was “depressing to be again presented with figures from the ISI that show this legislation is not fit for purpose, is not helping enough people deal with unsustainable debt and is not assisting those facing repossession like it is supposed to.”

He described it as “frustrating to have the State body responsible for implementing the legislation spinning the figures in a most disingenuous way instead of calling the reforms needed in the legislation and process to make, as we all want, the Insolvency service to work”

In the last quarter, the average debt-write off of mortgage debt as part of a PIA was just under 17 per cent although almost 70 per cent of cases saw no debt write off at all. The average write off of unsecured debt was slightly over 82 per cent.

People with unsecured borrowings of up to €35,000 and little or no assets can have their debts completely written off without any interference permitted by creditors when they are granted a DRN by the ISI. Until last year the maximum was €20,000.

A DSA only includes unsecured debts without a limit on the amount of debt while a PIA has a limit of €3 million and allows someone to come to an arrangement for their unsecured debt - such as credit cards - over a period of up to six years (and seven in certain circumstances). Secured debt, such as a mortgage, is also eligible for inclusion in a PIA and can be restructured - potentially allowing for a write-down of a portion of negative equity for example .

Bankruptcy is a High Court process that deals with both unsecured debt such as personal loans, credit card and business loans, and secured debt such as mortgages. When the process is over the slate is wiped clean and all debts are written off. In December the bankruptcy period in the Republic was reduced from three years to one.