There are now 40 (at time of writing) personal insolvency practitioners (PIPs) registered with the Insolvency Service of Ireland (ISI) and the service is fully open for business as of September 9.
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That’s some good news in a tough first week for the ISI, even if those numbers are still woefully inadequate.
Another positive snippet is that the insolvency legislation, which did not make provision for the names of discharged bankrupts and insolvent people to be taken off their debt registers, has been amended. Now these names will remain only for the duration of their insolvency or bankruptcy and for three months thereafter.
We’ll return to the implications of this information being made public (in a small place like Ireland) another time.
So much for the good news.
Anyone who listened to Drivetime and Liveline or read the reports of the interviews that PIP Jim Stafford gave to RTE presenters Mary Wilson and Philip Boucher Hayes, will know that all is not well with the new system. Regular readers of this column would have been alerted to its problems months ago.
For example, the Stafford interviews highlighted how insolvent, but higher income professionals (doctors, lawyers, accountants) are likely to be favoured by the system over ordinary PAYE-income earners, not because of their reportedly higher social status, but because of their higher commercial status with their creditors. Those creditors are likely to make more debt write-down concessions and accept shorter discharge periods because the debtor has more investment assets and higher incomes with which to pay them.
The interviews also revealed how many PIPs will cherry pick for higher income/asset clients because they can afford to pay the PIPs upfront fees and because creditor banks are more likely to them to front-load their remaining fees if – a big if – the debt arrangement terms, like widespread split mortgages, are to the banks’ liking rather than, say, mortgage write-down.
Stafford, in his second interview with Philip Boucher Hayes, also noted that there is no evidence that the banks are willing to write off mortgage debt for PAYE only debtors. Until this happens, he said (and it could be a year before the banks wake up to this reality, he said) he’d be recommending that clients avoid the formal ISI process and risk courting failure as the ISI’s ‘guinea pigs’.
But how long can someone wait to get closure to their already deeply stressful insolvency problem?
Many financial advisers insist that they are already doing mortgage write-off deals with the banks even if most of them (including the €135 million AIB claims it has written off) are buy-to-let ones.
Insolvency expert Paul Carroll of www.neofinancialsolutions.ie (who is awaiting PIP approval) has just published The Irish Bankruptcy Guide. He believes bankruptcy might be that sustainable solution where the banks are refusing to write-down some family home debt.
According to Carroll, a practising accountant and UK discharged bankrupt himself (giving him a unique insight into the process), bankruptcy will result in your income and any assets being turned over for three years to a High Court appointed Official Assignee (OA) who will undertake to sell and redistribute those assets “except those necessary to run a business, your personal items and furniture” to your creditors; you will be unable to borrow more than €630 or open bank accounts without the permission of the OA. Old accounts will be closed; large salaries may result in attachment orders and social welfare payments are not subject to attachment orders, but “reasonable living expenses” will be permitted out of your income; unless you have very valuable items of furniture or jewellery your household and personal possessions will not be sold. If your car is not valuable or is leased, it will not be sold; occupational and private pension payments during bankruptcy will be treated as income and can be part of the credit settlement; inheritances, income increases, windfalls will be subject to further distribution to creditors during your bankruptcy.
Where the family home is in arrears and in serious negative equity and therefore represents no value for the OA to sell and redistribute, chances are, says Carroll that you may keep your home or the bankrupt’s share might be able to be sold to their solvent partner.
Bankrupts end up debt-free at the end of the three years.
Compared to how some discharged PIAs could end up “with only their unsecured debts written off after six years; the loss of tracker rates; mortgages extended by another 10 years or with split mortgages that still have to be cleared some day” – regardless of whether they are still in negative equity – “bankruptcy, however difficult, is an option that should not be dismissed,” says Carroll.