Debt plan drives more into bankruptcy

Much higher numbers have been forced to enter bankruptcy because they do not have any excess income above a reasonable standard of living needed to apply for a personal insolvency arrangement, according to a leading insolvency practitioner.

Michael McAteer, personal insolvency practitioner with Grant Thornton, said more than 500 of the 1,500 people who contacted his firm over the past year enquiring about a personal insolvency arrangement did not have earnings above what is considered a reasonable standard of living and had no option but to apply for bankruptcy. “This is a much higher number than I would have originally expected,” he said.

Under a personal insolvency arrangement, a personal insolvency practitioner will negotiate between a debtor and that person’s creditors. Usually secured creditors, such as mortgage payments are restructured. Any income above a reasonable standard of living is distributed among unsecured creditors for up to six years. After that, the debtor is released from the unsecured debt.

The first protective certificate for a personal insolvency arrangement was issued by the courts last November. The head of the Insolvency Service of Ireland, Lorcan O’Connor, has told the Irish Examiner that the first amendment to the process will be made in March.

Roughly 12 questions that are in the prescribed financial statement will be taken out over the next month to make the application process more efficient. The ISI’s information technology systems are being updated to take account of these changes, he said.

“In the prescribed financial statement, there are questions like ‘what was the original loan amount’ and ‘what was the interest rate in the original loan agreement’. This information can be very hard to get and is not really needed. The prescribed financial statement is being changed to reflect that,” said Mr McAteer.

Mr O’Connor said the ISI will not be releasing any figures on the number of personal insolvency arrangement and bankruptcy cases until the service has been up and running for a full quarter.

Over the past 12 months, the Government has introduced bankruptcy and personal insolvency legislation to deal with the €18.9bn of mortgage debt in arrears and other personal debt.

Mr McAteer said that if a debtor is dealing predominantly with single bank debt, then it would be more appropriate to deal directly with the bank and follow the Central Bank’s mortgage arrears resolution process.

However, if a debtor has multi-bank debt consisting of both secured and unsecured creditors, then it would be more appropriate to pursue a personal insolvency arrangement as it ties all parties to a binding agreement.


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