New Personal Insolvency  legislation for Ireland is being promised by the government before the end of April 2012. It is something that the IMF and EU demanded as part of the bailout agreement.
Debt forgiveness has been  discussed many times over recent years – and now this bill will  hopefully help to address some of the  financial difficulties that many people in Ireland are experiencing .

There are going to be three main types of debt settlement systems that will not involve going to court.

1)  Debt Relief Certificate  or DRC – which will allow for the full write-off of  smaller qualifying unsecured debts of  up to €20,000, after a one-year period.  Applicants will need to be unable to pay the debts because their disposable income is less than €60 a month and their assets and savings are less then €400.  Applicants will have to go through an approved intermediary and  pay a processing fee of €90. See more about Debt Relief Certificates here

2)   Debt Settlement Arrangement  or DSA  which caters for the agreed settlement  of larger unsecured debt of €20,001 or more.
It will involve agreeing the repayment of some or all of the debts. At the satisfactory conclusion of the DSA after 5 years, all the  debts covered by it would be discharged in full. A  DSA will have to be prepared by a personal insolvency trustee.
More details here about Debt Settlement Arrangements

3)  Personal Insolvency Arrangement  (PIA) which is for the agreed settlement of both secured and unsecured debt of €20,001 and over. It allows for  unsecured loans to be completely settled over a six year period.

The treatment of mortgages and other secured loans is more flexible.  They can be settled over a six year period (e.g. where there is a sale of the property) or restructured and continue in existence beyond the six years  period (e.g. write-down of some of the loan principal, or deferred interest )

A PIA also has to be prepared by a personal insolvency trustee.

Read more about Personal Insolvency Arrangemants here .

The option of Bankruptcy will still be available through a legal process BUT  the  automatic discharge from bankruptcy will be reduced  to 3 years instead of  the current 12 years (subject to certain conditions)

Proposed new Insolvency laws in Ireland will allow for the full write off of  certain debts under €20,000  with a Debt Relief Certificate or DRC.
The changes are expected to come into force in the first half of 2012.

A Debt Relief Certificate will apply  to unsecured debts only – so mortgages will not be covered. It will cover debts such as  Bank Overdrafts , Rent, Credit Cards, Personal Loans  , Gas, Electricity Phone .
Debts over €20k will be dealt with by a Debt Settlement Arrangement

(Mortgage debts will be covered by a Personal Insolvency Arrangement)

To be eligible for a DRC – the debtor
1)  Cannot have more than  €60  a month disposable income (after payment of normal household expenses and payments in respect of any other excluded debts such as mortgages).

2) Cannot have  assets or  savings worth more than €400.(So homeowners will be excluded) . (Assets do not include:  a) any household equipment such as bedding, clothing and furniture ; (b) tools, books and other items of equipment used by the person in their job or business ; c)  a single car worth less than €1200 )

Applications for a Debt Relief Certificate will be handled by a new body called the Insolvency Service . Applications will have to be made through authorised intermediaries  and will cost €90 . The fee is to pay the Insolvency Service.  (How will someone with serious debts be able to afford this?)

Once a Debt Relief Certificate has been issued by the Insolvency Service- any creditors listed on the  certificate who are owed money cannot  start  any action or other legal proceedings  to recover  the debt.

At the end of a  moratorium period – (expected to be a year) -  the debtor will be  discharged from all the  debts specified in the debt relief certificate (including all interest, penalties and other sums whichmay have become payable since the application date

A person who is granted a Debt Relief Certificate cannot apply for another  DRC for  6 years.  A person can only ever obtain two DRCs in their lifetime.  They will

There seems to be plenty of firms operating in Ireland who offer to help people sort out their debt problems. Many households in Ireland are struggling with debts – and these companies are trying to make money out of it.

They make offers such as:
“Clear All Debts You Can’t Afford With Government Backed Scheme”
or  “Would you like to be debt free now? Contact us to wipe away your debts”
One firm’s advert states “The Irish Government Insolvency Act Can Wipe Upto 75% Of Your Debt” …..There is no such law in Ireland – yet.

Update – Jan 2012  – The Central Bank has recently warned customers of one debt management company  – “Yourmoney”   – not to pay them any money. The Central Bank issued a letter stating that  it had inspected the company and had “reasons to be concerned about the nature of the company’s operations and its handling of customers’ money.”

The Central Bank is also advising consumers to be aware that some  bill payment and debt management companies may not be regulated by the Central Bank. Where consumers  provide money to an unregulated company for onward payment to a creditor, the handling of this money will not be subject to segregation and safeguarding rules.

These commercial debt management companies charge for their work – and the Office of Fair Trading in the UK found some good reasons why you should avoid them.

Poor advice:  the investigation found that  many advisers were providing consumers with poor advice based on inadequate information. They were not  offering the solution that is in the best interests of the consumer, but instead that which is most profitable to them

High fees and charges: Monthly debt management plan  fees are typically about 17% of the repayment. The majority of the firms  front-load their fees with some imposing a minimum upfront fee of several hundred pounds. In most cases, creditors receive nothing for at least the first two months, pushing the debtor further into arrears.

Unregulated  : The debt management market is currently  unregulated in the UK and Ireland .

Cross-selling: Some Debt Management firms are part of a group that offers other services, such as loans.

Risk to your repayments:  Debt management companies take money from you to pay your debst .   The collapse of the company  could lead to the consumer’s money being lost.

Our advice is to contact a free service if you are in trouble with debt.

Call MABS  on 01 8129350

Here are the main points of the European Union Summit agreement, reached in the small hours of Friday after overnight talks.

• Eurozone countries  budgets should be balanced or in surplus; this principle will be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of gross domestic product.

• A similar  rule will also be introduced in eurozone member states’ own national legal systems; they must report national debt issuance plans in advance.

• As soon as a eurozone member state is in breach of the 3% deficit ceiling, there will be automatic consequences, including possible sanctions, unless a qualified majority of eurozone states is opposed.

• The European Stability Mechanism (ESM), the eurozone’s permanent bailout fund, is aimed to enter into force in July 2012; the existing European Financial Stability Facility (EFSF) will remain active until mid-2013. The overall ceiling of the EFSF/ESM of €500bn (£426bn) will be reviewed in March 2012.

• Eurozone and other EU states will confirm within 10 days the provision of funds to the IMF of up to €200bn in the form of bilateral loans to help it deal with the crisis.

• Voting rules in the ESM will be changed to allow decisions by a qualified majority of 85% in emergencies, although that remains subject to confirmation by the Finnish parliament.

Britain did not sign up to this agreement  – because they wanted these extra safeguards  :-

a) Any transfer of power from a national regulator to an EU regulator on financial services would be subject to a veto.

b) Banks should face a higher capital requirement.

c) The European Banking Authority should remain in London. There were suggestions that it might be consolidated in the European Security and Markets Authority in Paris.

d)The European Central Bank be rebuffed in its attempts to rule that euro-denominated transactions take place within the eurozone.

The decision by David Cameron will transform Britain’s relations within the EU. Other projects, such as the euro currency and the creation of the passport-free  travel area, have gone ahead without British involvement. But it is the first time since Britain joined in 1973 that a treaty that strikes at the heart of the workings of the EU will be agreed without a British signature.

If you are having problems paying your mortgage – don’t panic.
Lenders must wait  twelve months from the time the first mortgage arrears arise before they  can apply  to begin repossession proceedings – butdon’t leave it that long before you do something about it .

Don’t ignore letters or phone calls  from your mortgage lender . They are obliged  under the Code of Conduct on Mortgage Arrears to keep in contact with you and to make every reasonable effort to agree an alternative repayment schedule with you before seeking repossession of the family home.

If you are in mortgage arrears, or are struggling to continue paying your monthly  repayments – you should contact your mortgage lender as soon as possible to let them know why.
It is best to make contact in writing – and keep a copy of what you send.

Work out down your household budget  showing your income and  spending – this will show what you can realistically afford to repay. You might try to cut down on any non essential  “extras” .

Don’t stop paying altogether -  pay what you  can afford  taking into account the overall cost of running your household – food , fuel , clothes etc. Make a genuine and reasonable offer and don’t agree to try to pay more.

If you have been made redundant, check whether you have any Mortgage Payment Protection Insurance.

Claim  Mortgage Interest Supplement  – from your local HSE welfare office.

Your lender may suggest alternative repayment options to you – with lower monthly amounts.
For example : Paying  “interest only” for a period of time or  extending the term of your mortgage to reduce the cost of monthly repayments.
Make sure any new repayment plan agreed with your lender is put in writing. .

If your case does go to court – you may well be liable for the court costs too  It will help your case if you can show that you are making a genuine effort to repay the debt. You should seek independent legal advice in such cases. You may be entitled to free legal aid .

Unfortunately, there are some situations where people will just not be able to meet their mortgage repayments in the long term.
If this is the case – you must seriously consider your options. Independent legal advice from your solicitor and/or  free  advice from  MABS is recommended.

If you are tempted to “hand back the keys” remember that you will remain liable for all the outstanding debt, including any accrued interest, charges, legal, selling and other related costs.

When people become unemployed it can be difficult to continue repaying debts such as mortgages, credit cards and personal  loans. Some people just miss a payment and hope they will manage the next one. Others may look for loans to consolidate all the debts into one larger loan – but this may not be the best way to solve the problem. People struggling to repay debts should not just ignore the problem – it will not just go away. You should contact lenders to let them know about your difficulties – they may be able to help by extending the repayment period .

A Formal Scheme of Arrangement is an agreement arranged between you and at least 60% of your creditors. Once agreed it is imposed by a High Court Judge. This is really only used  in more extreme cases, where the level of debt is considerable.

Most “Schemes of Arrangement“  done with creditors in Ireland are done on an informal basis . Informal arrangements are also  known as Debt Managment Plans or  Debt Management Arrangement.

A Debt Management Plan is a process whereby you and your creditors voluntarily enter into an agreement  to help you to restructure, or reduce the amount that you owe them, and the time period over which you will pay them.

The MABS – Money Advice and Budgeting Service is a free service funded by the Government. They have lots experience of dealing with debt problems and can be contacted on 1890 283 438. They have offices all over Ireland – but there may be a waiting time in some areas to see an advisor.

There are also several companies out there advertising their services in “helping” people sort out debt problems.  They will not do it for free – they will expect payment.  There is no regulation of these debt management companies in Ireland by the Financial Regulator .
Many of these debt management companies will charge around 10 or 15% of your monthly repayment each month as well as taking 1  months repayments up front as a fee. So if you agree to repay all your creditors a total of €1000  a month – a debt management company will typically take €1000 up front and then €150 a month after that.
Our advice is to try MABS.ie first.

Some examples of Debt Management companies operating  in Ireland:

Mccambridgeduffy.co.uk have a Belfast office and will retain the  first monthly payment of the plan as a set up fee (max £750)  A monthly fee of 15% will be deducted as a management fee, subject to a minimum payment of £25 and a maximum payment of £100.

Debtplan.ie  charge  an initial Fee equal to 1 full month’s repayment, subject to a minimum of €500 plus VAT@21.5% and a maximum of €800.00 plus VAT@21.5% .
They also charge a n ongoing fee equal to 10% of your monthly agreed repayment , subject to a minimum fee of €25.00 plus VAT@21.5% and a maximum fee of €70.00 plus VAT@21.5%

A report by Fitch Ratings says that Ireland is just halfway through our property slump and we are likely to see house prices fall 45%  from their peak – bringing them back  to 2000 levels.

Fitch Ratings is a global rating agency that provides the world’s credit markets with independent and prospective credit opinions, research, and data.

The report also said that “the poor state of public finances has left the government no room to use fiscal measures to support the economy.”   They also  forecast  the jobless rate to climb from 12.5pc this year to 15pc by 2011.

After the recent admission by  Brian Lenihan -  that Ireland  was on the brink of a debt compound spiral that risks a further doubling of public debt to €160bn  by 2013. At the annual dinner of the Dublin Chamber of Commerce he  said  “We need to stabilise our public finances , we need to reduce the national debt, otherwise we are on the road to ruin”
Some people see these panicky soundbytes as softeners for the 2010  Budget due in December this year.

More bad news from Goodbody Stockbrokers – who said on Monday that Ireland’s private sector debt will reach 225% of GDP this year, up from 86%  in 1999 . Combined public and private debt will soon top 300% of GDP,  which will not help recovery.

Price deflationin Ireland was  6.5% in  September, which is steeper than during the Great Depression.

The average Irish household faces negative equity of €43,000. Further property price falls would leave large numbers of people with crippling debts

House prices have dropped 24pc since peaking in late 2006, but at they are still at 7.5 times the average income.  More drops are inevitable.  Fitch expects the price/income ratio to revert to 5.5  eventually . Price deflation and wage stagnation means that the adjustment will have to be achieved by adjustment of house prices instead.

With ECB  interest rates cut to 1pc, the full benefits have yet filter through to Irish households. Fitch said interbank lending rates have risen substantially, “reflecting market concerns over the creditworthiness of Irish banks and the Irish Sovereign”. The agency said the scale of house price declines has raised “particular concern” about arrears on sub-prime debt and it is reviewing all Irish residential mortgage bonds that it rates.

There was some good news – Ireland was the only EU country to show a small rise in exports this year. The continued  strength of the Euro will not help  future exports  though.