‘Mortgage debts must be written down’

Mortgage debt write-downs are needed to help families trapped in arrears, insolvency experts told TDs.

 

The Insolvency Service of Ireland said the controversial move would rescue people in genuine distress and would not be open to abuse.

Giving evidence to the Oireachtas justice committee, the organisation’s director Lorcan O’Connor said such write-downs in specific cases would not be “resented” or demanded by other people struggling to make payments.

“I do not accept the argument that there can be no write-down of mortgage debt. Sometimes that will be the correct thing to do. Not only in order to keep a family in their home, but also because it makes financial sense for the creditor.

“I equally do not accept the argument that if you allow one person a write-down when it is genuinely needed, then everyone else will demand one, including those who have at all times been paying their mortgage.

“People in my experience, and in the survey work we have commissioned, want to pay their debts.

“Those who can pay them will pay them. And there are a number of safeguards built into our legislation to ensure that is the case.

“But I also believe no reasonable person will resent seeing someone who has fallen on difficult times benefit from proportionate debt forgiveness,” Mr O’Connor said.

The service would be drawn on whether or not the bankruptcy period is cut from three years to 12 months, as Labour is pushing for — against Fine Gael resistance.

Insolvency experts put the case for change and leaving the period as it is, saying there were pros and cons with both scenarios.

The ISI’s Chris Lehane told Oireachtas members that reducing the term could encourage “bankruptcy tourism” into Ireland, and create an air of “moral hazard” where people try to avoid paying debts back.

“In my view there is no basis for asserting that a reduction in the bankruptcy term will improve the prospects of a bankrupt person retaining his family home,” Mr Lehane said.

The Oireachtas members heard that the 37,000 mortgages with arrears of more than 720 days impacted on 30,000 families due to more than one mortgage being taken on a property.

The ISI said it had helped in some 2,000 cases and insisted that its existence had forced the banks to cut private deals with customers.

The committee heard that 70% of people who opt for bankruptcy end up losing their homes.

TDs were told that the threat of handing back keys can work in the mortgagees’ advantage in some cases as it marks the “crystallisation of negative equity” for the banks concerned, who may then offer better terms in a settlement.

Mr Lehane said the benefits of reducing the bankruptcy period would include the enhanced opportunity for economic rehabilitation of debtors and a quicker fresh start for entrepreneurs, and while it could attract foreign bankruptcy tourists here, it would prevent Irish people taking their cases in the UK and US.

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