THERE’S a great deal of talk about debt restructuring and resolution in this country – and some it is finally focussed on the problems that ordinary people, and not just the insolvent banks – are experiencing.
But until the new government finds the time to properly assess the depth and breadth of this problem – and that won’t happen until the bank crisis is finally resolved and the IMF/EU/ECB deal is running smoothly - the danger is that they will only apply temporary sticking plasters to what is becoming a pumping, open wound.
Last December, the Law Reform Commission produced an excellent report on ‘Personal Debt Management and Debt Enforcement’ that addressed our arcane personal bankruptcy legislation. At its core was a proposal that after a very lengthy and thorough assessment by a private debt facilitator, that the person’s debts either written off – discharged - immediately (this would apply to those with no assets, no income or realistic prospects of ever being able to repay the debt) or they would be are discharged after a period of three to five years as part of a mainly non-judicial insolvency procedure. Formal bankruptcy was also proposed for commercial debtors.
The Law Commission system is not as generous re discharge as it is in the UK for example, where the bankrupt can be discharged within 12 months. But it is a huge advance on the absurd, expensive, unworkable court-based system here in which there is a minimum 12 years before discharge and sometimes, not even then.
This report is the best template the government has and they should be moving quickly to adopt it. We are obliged under the IMF/EU/ECB loan deal to reform the law by next year, but like so many of our obligations to ‘the troika’ it hasn’t moved much further from its launch last December.
Meanwhile, there is the new Code of Conduct for mortgage arrears that most of the mortgage lenders have or will adopt. It deals with homeowners in arrears or even pre-arrears distress and requires the bank to work with the person to re-structure their payments before they pursue any legal course to repossess the property. There is also a one year moratorium before they can resort to the courts if the deal fails.
The Code will give thousands of distressed mortgage holders some breathing space, but it doesn’t address the other unsecured debt they (or others) may be juggling car loans, credit card bills, other personal and HP loans, utility bills.
Up to now, the main piece of advice for such people has been to talk to the creditor and/or to make an appointment with their local Money Advice & Budget Service (MABS) to prepare a personal financial statement that is then presented to the bank or creditor to start negotiations.
Unfortunately, the non-mortgage lenders or creditors (in the car loan or credit card department) may not be so co-operative. They don’t care how it happens, they just want their money, say people who fall behind with these repayments.
Meanwhile, at MABS, the numbers of people needing assistance has risen so sharply that long waiting lists for appointments now occur and they simply don’t have the resources with which to give as personalised a service as they once did.
A new industry is emerging to fill this gap – debt management agencies. They are everywhere now. Some are Irish, some are based in the UK. They can operate with very different terms and conditions and costs.
Many are run by ex-mortgage brokers who, now that the property market has collapsed, have shifted their attention to the debt problems of their former mortgage clients. Many would have sold inappropriate mortgages or encouraged far higher loans than they should have because of the huge commissions they once earned from such deals.
That said, there is certainly a need for good debt management advice. It can mean the difference between an emotion-charged, on-going confrontation between the debtor and their creditors, in which “the one who shouts the loudest” secures the biggest payment that month, says Eugene McDarby of MoneyVillage.ie, and a realistic, sustainable arrangement that offers the best outcome possible to both parties.
Debt management agencies are not regulated by the Financial Regulator, but McDarby says they should be. He and three other firms have formed the Debt Management Association of Ireland (DMAI) and have created their own code of best practice. (See www.dmai.ie)
McDarby, a former mortgage broker himself, offers a fee-based service – with an initial fee of €165 for three to six months and a flat monthly fee thereafter ranging from €35 to €50 based on the number of creditors with whom MoneyVillage negotiates. This involves getting the creditors to agree to a certain reasonable, regular repayment for an agreed period as well as writing off a portion of the debt as full and final payment.
The key role for the debt manager is to act as an arbitrator, he says, but also to help rehabilitate the debtor so that they can get back their life and move on.
Finding good, objective, affordable financial advice of any kind is always challenging. It will be even more difficult in an unregulated sector like debt management, so if you do seek the services of a debt management intermediary make sure their terms – and costs – are absolutely transparent.
The DMAI is only a self-regulated trade body, and there only a handful of members, but it’s a start.
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