Personal insolvency arrangements will work for a select group of individuals only, and alternative resolutions must be made available for the most vulnerable, advocacy groups have said. And the last resort of bankruptcy, with up-front costs in the region of €2,000, is out of the reach of many ordinary debtors.
The Personal Insolvency Act 2012 introduced three new debt-resolution mechanisms: the personal insolvency arrangement (PIA), for people with secured and unsecured debts; the debt-settlement arrangement (DSA), for people with unsecured debt only; and the debt-relief notice for unsecured debts up to €20,000. Both PIAs and DSAs must be structured and overseen by personal insolvency practitioners (Pips), of which there are currently 73 registered with the Insolvency Service of Ireland. They must also be approved by creditors.
Reasonable living expenses
Paul Joyce, senior policy researcher with the Free Legal Advice Centres (Flac), says many people are being told by Pips there is no point going forward with a proposal. The reasonable living expenses, taken into account when calculating how much money is available to repay creditors, make for a "pretty clean and clear calculation".
“If you have €50 spare a month how can you possibly enter into a viable debt-settlement arrangement that your creditors will accept given that the Pip will have to be paid out of that money as well?”
He also says bankruptcy is beyond the reach of many because it requires a minimum of €2,000 up front, including a €650 deposit for the official assignee, a court-appointed person who deals with the assets of a bankrupt, as well as the cost of advertisements and stamp duty of €250.
He said some alternative solution needed to be found, including perhaps a publicly funded or creditor-funded insolvency service.
Julie Sadlier, solicitor with the Phoenix Project, an advice and support charity for distressed borrowers in Portlaoise, said they worry for "the raft of people" without enough extra income to qualify for an insolvency arrangement. Up to half of the people they see don't qualify, she says.
The organisation advised 450 clients in the first three months of the year and have so far referred about 100 to Pips.
“We have seen repossession ramped up hugely: a lot more litigation, a lot more solicitors’ letters, a lot more threats,” she said. “People who don’t qualify for insolvency are under massive pressure. It’s a huge problem out there.”
Pip Francis Brophy, of Brophy & Co in Dublin, also says about half of his clients would not qualify for insolvency arrangements. There is a cohort of people who do not have the income required. There is also a group who borrowed perhaps €100,000 to build an extension, on the strength of their home.
“They are coming to the end of their working lives or their work circumstances changed for the worse, they are struggling even to pay the interest on the mortgages, but there isn’t a solution for them because the bank will never write down a loan below the value of the property.”
He will be using more DSAs than PIAs, he says, because the latter have drawbacks including that, though they technically end after six years, if a PIA is solely to deal with mortgage debt and there are no prospects to increase income, “you are effectively stuck with a PIA for the rest of your life”.
For Pip Michael Keenan, of RSM Farrell Grant Sparks in Longford, 60 or 70 per cent of the people he sees are not suitable for arrangements, chiefly because they have no surplus income. He also believes PIAs will be the least likely arrangement to be used , especially in circumstances where there is only one lender involved. He expects to see a significant increase in bankruptcy in the next two years. But he acknowledges the costs involved are high, an estimated €3,000 to €6,000 if a solicitor is involved, and in many cases people can't afford that.