More than half of all Personal Insolvency Applications (PIAs) coming before the Circuit Court in the Dublin region are from older borrowers whose homes are now worth more than their debts, according to legal sources.
Most have been struggling with their debts for years, still have debts that their income in their remaining working years will not be able to pay off, or are retired.
Such “balance sheet solvent, but cash flow insolvent” people can have “bespoke solutions” put in place for them, said personal insolvency practitioner Mitchell O’Brien, of IRS Ireland.
“People in long-term mortgage arrears who are both age and income-challenged need to reach out to a personal insolvency practitioner with a view to a PIA,” he said.
PIAs can involve arrangements where the debtor pays interest and capital up to retirement, after which they switch to interest-only payments, with the debt still owed when they die being paid from their estate.
If the debtor is already retired, then interest-only arrangements can be put in place for the remainder of their life.
Such cases do not involve the levels of debt that usually make headlines but constitute by far the bulk of the PIAs being negotiated by the courts system.
One such arrangement approved this week in the High Court by Mr Justice Alexander Owens, involved a couple in their early 70s with a home in Tallaght, Dublin, with a combined monthly income of slightly more than €2,000 from their state pension.
When presenting the deal in the court, barrister Keith Farry, for IRS Ireland, described the proposal as one of the “rest of life” type proposals now coming before the court regularly.
The couple’s three-bedroom terraced home had a market value at the time of assessment of €280,000, the mortgage debt was €112,000, so the estimated positive equity was €168,000. There was a credit card loan of €16,700 with the Bank of Ireland that was settled with a payment of €5,000.
A contribution towards the PIA of €9,400 by the couple would go towards fees and the credit card debt.
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The husband was a former taxi driver who could no longer work after being in a car accident. The couple were advised by IRS Ireland that they should not pay more in mortgage repayments than the cost of social housing (€385 per month) for people with their means. This was substantially less than what they had been paying.
The couple did not qualify for the mortgage-to-rent scheme because of their positive equity. If they did sell their home and settle their debts, they would not be left with enough money to buy a new home in Tallaght, they were advised by IRS Ireland.
The debt was owed to Ulster Bank and serviced by Pepper Finance. The bank voted against the proposed PIA and opposed it in the Circuit Court. In its objection, the bank pointed out that its business model envisaged the receipt of a steady cash flow of interest and capital on its residential loan book. It also said it would get 100 per cent of its money back if the debtor were to be declared bankrupt. It wanted the couple to sell their home.
When the case came before the High Court, the bank had dropped its objection after the terms of the PIA were altered. The court still had to approve the deal because the original creditor voted against the arrangement.
The High Court has taken the view that “rest of life” deals can be approved if they are not objected to, even if the terms are such that the debtors are unlikely to live as long as the deals envisage.
In 2021, Mr Justice Mark Sanfey, of the High Court, ruled against a PIA for a then 69-year-old woman who would have been making mortgage payments until the age of 98 under the deal. The court said the debtor would not be “reasonably likely” to comply with the terms. The €72,500 debt was owed to Ulster Bank, which opposed the deal.
The judge noted the bank’s opposition and said such an arrangement was not permissible when the term of the restructured loan was likely to exceed the lifespan of the debtor (average lifespan in Ireland is 80.5 years for men and 84.3 years for women).
In another ruling in the same year, Mr Justice Sanfey approved a PIA for a then 54-year-old woman that meant her making repayments until she reached the age of 90, noting that there was no objection from the bank.
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