Floored by Debt
Many of the self-employed are finding themselves at the mercy of the banks as they gave a personal guarantee on a business loan, never once suspecting in boomtime that the economy would shortly implode.
Some of the people that walk through the door of the MABS office are only managing three meals a day because of support from St Vincent de Paul, while in many other cases, granny and grandad are footing the weekly grocery bill.
In other cases, however, it’s granny and grandad who are living in fear — in their late 50s and 60s, they don’t know whether they’ll be able to keep the roof over their heads as they went guarantor so their now unemployed offspring could get on the all-important ‘first rung of the property ladder’. Others ‘released the equity in their homes’ as Celtic Tiger banking advertisements implored us to on a daily basis and now find themselves jobless and in arrears on a mortgage that was all but cleared at one point.
“I think the people we are seeing here are reflective of what’s happening in the community and the general environment. Traditionally, it would have been lower income or social welfare clients coming in, but as the recession hit, we saw a lot more people who traditionally were higher earners coming in: articulate, competent people who have been stricken by the recession. And in many cases the anxiety is affecting their competency and ability to cope,” says one of the staff.
The MABS staff, frontline staff and money advisors who come from a variety of backgrounds, including law, finance and business, have agreed to talk to me on condition that they are not identified as that could compromise them with clients. Latest statistics show the MABS office in Cork City, situated in a nondescript office in the Penrose Wharf business centre, is the busiest in the country,
“In all sorts of ways, many people can be compromised physically, mentally, cognitively when they first make contact with us,” says one member of the Cork MABS team.
“In the first phone call, you will pick up in their voices the stress that they are under. There’s a huge amount of guilt there around their children, their family and when they are putting their aged parents homes at risk.
“We’re also seeing a lot more depression as a result of constant anxiety and a belief that they can’t cope,” says another staff member who says to date most deals with banks only provide breathing space and not a long-term workable solution.
Some of the clients are termed as self help as they only need a “a little bit of support” to address their budget shortfall and to face them in the right direction as they begin negotiations with creditors. MABS’ ethos is that all creditors are treated equally.
“You will see once people start to work with the money advisors, these people will eventually recover to a level where by the end of the money advice process they are in a position to regain control”.
Interestingly, the staff say that whereas ten years ago there might have been a stigma around having a prepaid electricity meter installed in your home, they are becoming increasingly acceptable. “We’re hearing from the utility services and from people that they are looking for them now before the arrears even start or become more serious”. One money advisor says she believes the younger generations are more open with their financial troubles, openly admitting to friends “that they’re out for a drink for the first time in six months because they’re behind with the mortgage”. However, for much of the older generation debt is still mired in shame.
“Obviously in our working week, there’s a lot of emotion out there, in any given week there is always tears,” says one staff member as all around the others nod. “Yes, you have sympathy, but you have to remain objective to a degree too. It’s about boundaries as you have to be there for the next person”.
“It is satisfying, though,” chimes in another staff member. “Very often, we will hear a lot of sighs; there is just a relief at having spoken to someone at last and having landed the facts on the table, at having started the process and having begun to regain some kind of control over finances”.
Despite the growing public awareness of MABS in Austerity Ireland, the decision to reach out and admit that you are in trouble is anathema to many. Last week, St Vincent de Paul said that one of their clients had admitted walking up and down their street for a week as she was too terrified to walk in the door. Such stories are common at MABS Cork where fear too is the driving factor that makes people eventually pick up the phone as usually they’ve been trying to cope alone for months if not years.
It can be notification that their debt has been sent to a debt party collector that expedites that phonecall, it can be a statement outlining the size of their debt, the interest accrued, the amount overdue. Not often enough, it’s the ‘standard financial statement’, a bulky document that can be 10-12 pages long, which asks them to outline their debts, their dependants, household bills, monthly and weekly outgoings.
In a worrying departure, it’s believed that some bank officials are ringing highly stressed defaulters, requesting that they complete this enormously important document over the phone even though the householder couldn’t possibly have accurate and full information to hand. According to MABS, it can take weeks before a client can acquire the requested up-to-date information.
The Irish Examiner Riches to Rags columnist, who has written regularly about life as one of the Nouveau Poor, says: “There is a total lack of awareness when you give out that detail about social insurance number, social welfare, children’s allowance, expenditure that they are doing an audit on you and that can be the basis for the decision on what you must repay or that your debt is unsustainable ”.
The MABS office agrees heartily. “We are finding that people often want to be seen in the best light, they are ordinary decent people who would consider themselves honourable people, and they feel very vulnerable and so they are downplaying what they need to survive on. Often what they put on the financial statement is not reflecting their real cost of living, they’re not including property tax, all the small things like lunches for schools, occasions like birthdays, Christmas, communions.”
MABS also strongly advises clients to attend court themselves when creditors are seeking instalment orders. Instalment orders are legal binding commitments, based on another important document, the statement of means and subsequent cross examination in court. The instalment order makes the debtor legally bound to repay a particular sum to a creditor each week or month. If the instalment order is not paid by the householder, he can ultimately face jail.
“People do need to be vigilant around instalment orders as you can’t go back on them without a legal variance of the order. We are seeing people who are terrified of going into court, terrified of being cross examined, they don’t also want to be seen in court. They are of the false belief that a judgement can only be made by consent or else they are leaving their solicitor to forge a deal. However, we find that if the person attends court, they certainly get a good hearing from a judge. I would advise people to go into court,” one staff member said.
As part of its work with householders, MABS often first gives their budget sheet to new clients. This is the starting point for agreeing a sustainable budget and is normally sent to the client before they attend their first meeting. The more able clients are also pointed towards the self- help packs and the website. The clients then meet with the money advisors over a series of meetings.
“We will go at whatever pace is necessary. Often you have to unravel a big web of debt and people need time and space between appointments. We will see gaps and holes in their budget and will ask key questions. It’s all about listening too, you have to listen as often a lot of potentially important information is given in informal ways, such as disability in the house which might mean somebody has more entitlements and also it is something which should be highlighted in financial statements”.
“Information is power” stresses another advisor. “We have a lot of knowledge and it becomes personally rewarding for us when over time we see how they are now making payments to creditors or can now deal with their situation and are that bit less stressed and brighter”.
With self employed and formerly self-employed people, they will often direct them to CAVA, a free, confidential, independent national organisation that provides advice to business people who cannot afford to pay for an accountant.
But the four MABS priorities are roof over head, light, heat and food. Not surprisingly, not all clients are of the same point of view.
“So you work together on that. If someone smokes, you will be reluctant to tell them how much to smoke but often, once they see in black and white how much it is costing each year, they begin to reduce. What you might say is ‘look at rollies instead’ and then you might find at the end of the process that they have dropped their smoking by 50 or 60%, or stopped.
“You also often seem them much less stressed by the end of the process.
“When planning budgets and filling out financial statements with people we will tell them not to paint the incorrect picture of their lives. You have to do the big things, the occasions that will come around year after year, the birthdays, the communions, Christmas. That has to be included. Just because your mortgage is in arrears doesn’t mean that you don’t have an entitlement to live”.
MABS Cork see a lot of couples under enormous pressure from financial problems. They encourage couples to come in together as “both adults need to come to an agreement for something to work”. One of the biggest challenges for parents, they all agree, is around ‘changes for children’: the need to slash pocket money, extra curricular activities, expenditure on clothes and birthday presents.
They say most of their clients are living on weekly budget below the controversial sums suggested by the Personal Insolvency Service. Some are living at levels considerably below. “You will see many people living in two rooms as the other rooms aren’t being heated, they are just living waiting for banks to come with a long-term proposal, they are co-operating with banks but have no idea how cards are going to fall or where their future lies,” says one staffer.
The much-vaunted insolvency service is not going to give any kind of finality to these people. They won’t get it, according to MABS, as they don’t have the money to pay an insolvency practitioner. Simple as.
“Only one in 7 are getting insolvency, you have to be viable to get it but most people aren’t viable as they can’t get secure an income. I realise now that the bank want to take my home and that they want at least €1,500 a month if I’m to hold on to it. My outstanding mortgage is €300,000, much of which comes from personal guarantees on business loans,” adds our ‘Rags to Riches’ columnist.
MABS believe there should be a form of State-funded insolvency. At least twice, a week they say they see a couple who would likely get insolvency but they can’t access the cash to pay an insolvency practitioner as they’ve exhausted all possible avenues in the past six or seven years.
“It is all aimed at people that can afford it, that have disposable incomes. Those without money can’t consider it,” says a staffer. They also expressed concerns that the debt relief notice (DRN) scheme — which is aimed at those with very low disposable income or assets — is “limited” as the maximum debt qualifying for write-off is €20,000, an absurdly low figure.
So where to here from here for the families and couples that are crowding their waiting room? The families who have spent years on short-term deals with the banks, living from six months to six months before the next review? What now for the people that go to sleep anxious and wake up with the same knot in their stomach, live from week to week having no idea what the future holds?
The banks have been under fire for years now because of a perceived lethargy around reaching final solutions for debt-swamped customers and so the Government last month announced it had revised its targets for the banks.
It now wants banks to have concluded arrangements with 15% of their over 90-day mortgage arrears customers by the end of December and 25% of customers by the end of next March.
“We are only at the beginning of long-term arrangements,” says one staff member. “Eight out of ten people would be on interest only arrangements, but those final decisions on those cases are yet to be made. It all depends on what the lender is willing to offer and now for the first time they are beginning to explore options, long term arrangements are slowly trickling in. We are seeing warehousing of debt and split mortgages in some cases, but there is no pattern as to why some people are being chosen”.
“Where we’re at now is proposals coming in from the banks,” says another staffer. “We’re seeing a small amount of options being put forward. Yes, we are seeing voluntary surrender and forced sale, but the big fear for people is where to live after that? It’s all very individual and it’s hard to know who is deciding how particular people are being treated. Some clients are looking at renting out more rooms, renting out the house even just so they can hold on to it There is little or no transparency on the deals and nobody knows who is deciding what is sustainable and not”.
At the corner of the MABS board room, one of the frontline staff sighs. “You know for many people, they just want to hand over the keys and then walk away but they can’t. If US-style jingle mail existed in this country, you would have far more long-term solutions”.
The Central Bank chief has promised an audit of “solution offers” by the end of the year to see if institutions are providing realistic options. However, most of these deals are bound by confidentiality agreements which means concern exists that the more ‘connected’ and ‘less vulnerable’ will get an easier ride while those less able to negotiate will suffer.
There is talk that in unsustainable situations deals are being done whereby the homeowner can stay in their house until the children finish school, then by agreement the bank will move in to repossess.
And as the banks throw out more long-term scenarios, the squeeze from them to increase repayments is now being felt elsewhere in the financial sector. “We’re seeing more utility arrears, rent and credit union arrears as the banks want as much back as possible from their loans,” say the MABS staff.
“We are strongly advising people to get advice from an accountant before they sign up to anything long term or final. Such an offer can be the first time that have any sense of security and there can be a panic to sign before it’s withdrawn but really, take the document away with you and don’t just sign, you are entitled to €250 towards an accountants fee when deciding on that long-term solution”. MABS is also reminding customers that many bankers pushing debt solutions are working to target and could try and rush through unreasonable deals.
For their part, advocacy group New Beginning has warned that the bank’s new long term solution targets will lead to a rise in repossessions
MABS says many clients’ mortgage cases aren’t hopeless but neither can they ” give false hope”.
“Yes there are times where we will have to say to people ‘have you considered how you will manage if you lose your home?’ There are times when there is no sugar coating as harsh as it may seem; the bank is not to blame for this, there is an equal responsibility in this”.
* Most recent figures show at the end of June, 16% of the country’s €100bn worth of mortgages were in arrears.
* Up to 14.3% of the country’s €100 bn of mortgages have been in arrears for more than 180 days.
* 18.6bn worth of mortgages on people’s principal private residences were in arrears by more than 90 days. That figure has quadrupled since 2009.
* According to Free Legal Advice Centres, mortgage arrears calls formed 43% of all of their debt enquiries last year. So far this year, they accounted for 56% of calls about debt.
* The Central Bank has also warned that a third of households in arrears are now two years behind in repayments.
A. Take a piece of paper and, on one side, write down the money you have coming in each week or month. On the other side, make a list of all your weekly or monthly spending commitments. Try to be honest with yourself and involve other family members if possible. You can use the interactive budget sheet listing a number of common household expenses of expenditure from the MABS website at www.mabs.ie. Add up everything and identify areas where might be able to increase your income or cut back on spending. Seeing the full situation on paper can help you identify how much you can realistically pay back.
A. If it is clear from your budget that you cannot afford your repayments, sending your lenders a copy of your budget is often an effective way of persuading them to accept reduced payments over a longer period of time.
A. It is always a good idea to check the agreement you signed with your lender. It will tell you what type of agreement you have and what might happen if you fail to pay. This can help you decide what to do next. If you have mislaid your copy your credit agreement, you are legally entitled to get a replacement copy by post when you write to the company asking for one. If you are unsure about what the small print means, MABS may be able to advise you. If you took out a loan to buy goods, the agreement may be a credit sale agreement. This type of agreement means that the goods you are buying are already yours. There is no need to worry about them being repossessed without a court order. However, if the agreement is a hire purchase agreement, the goods belong to the company until you make your final payment. If you have already paid more than one-third of the
total hire purchase price, they will need a court order before they can repossess the goods. If you need the goods (for example if it is a car for work) this debt should take priority over less important debts. This means that if you are making an offer to the hire purchase company, it should be a substantial one.
A. You should never agree to pay more than you can realistically afford. Any offer you make should be based on what you have left over after paying your essential commitments such as housing, heat, light and so on.
* An extract from the MABS Guide to Credit Arrears
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