78 debtors get second chance at keeping homes

Over the last two years, the courts have overturned 78 decisions by creditors to refuse personal insolvency arrangements for those in severe debt and at risk of losing their homes.

 

There are a further 500 cases in the pipeline, according to Justice Minister Charlie Flanagan.

In November 2015, the “section 115a” court review process came into effect which permits a debtor to ask the court to review and assess the reasonableness of a personal insolvency arrangement (PIA) proposal which has been refused by creditors and which includes mortgage arrears on the debtor’s home.

A PIA enables an eligible insolvent debtor to reach agreement with creditors (both secured and unsecured) in relation to the settlement and/or restructuring of his or her debts. Debts of up to €3m can be settled or restructured over a period of six years. The arrangement is put together by a personal insolvency practitioner who will then seek approval for it at a creditors’ meeting.

During the section 115A court review, the court looks at the reasonableness of the creditor’s refusal of the PIA. If satisfied, it will impose the proposed PIA on the dissenting creditor(s).

“This court-based review effectively removes the so-called ‘bank veto’,” said Mr Flanagan. “Since the introduction of the section 115A court review, 78 cases have been approved by the courts in favour of the debtor. Currently, there are over 500 cases before the courts.”

Mr Flanagan referred to what he calleds a significant High Court ruling last month which addressed two issues that had delayed the process — technical issues over the application for a court review and a fear among personal insolvency practitioners that creditors might pursue them for costs in a personal capacity.

“These issues have now been adequately addressed,” he said.

“The judgment has been positively received by both the Insolvency Service of Ireland and Personal Insolvency Practitioners. Subject to any possible appeal, it is expected the judgment will lead to increased activity in personal insolvency arrangements.”

In response to a parliamentary question from Sinn Féin’s Pearse Doherty, Mr Flanagan also said that the High Court had published a number of important detailed judgments on the criteria that will be applied by the courts in section 115A review cases, and the types of mortgage arrears resolutions that may be imposed.

The precedents involved the following issues:

  • Separated spouses: A case involving a separated spouse who restructured the couple’s mortgage. The court rejected a claim by the bank that, before any restructure, the bank needed the co-operation of the joint borrower;
  • Rejection of unsustainable warehousing proposal and approval for negative equity write-off: A case where the lender wanted to warehouse part of a mortgage. The court ruled that this could not be done unless there is a reasonable prospect of the couple paying back the warehoused amount. The court, instead, imposed the PIA which wrote off most of the negative equity;
  • Fixing interest rate for the long-term: A case concerning a mortgage rate fixed for 27 years. In assessing if this unfairly prejudiced, the financial institution (a fund rather than a bank), the court held it was appropriate to compare with market investment returns rather than with the interest rates and terms that are available to a bank which also has to raise capital. The court decided that the PIA proposal, including the fixed interest rate, was fair and reasonable in this context and was not unfairly prejudicial.


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