Distressed mortgage holders may be tied to banks for an extra 14 years

Distressed mortgage holders may have to rethink plans to enter personal insolvency arrangements next week following the realisation they will be chained to their banks for 14 years longer than envisaged.

Campaigners for debt relief have admitted they failed to notice a provision in the Personal Insolvency Act, due to come into practice next Monday, that allows banks claw back additional money from debtors who sell their homes at a gain any time up to 20 years after they enter an arrangement.

David Hall, of the Irish Mortgage Holders Organisation, said the provision in Section 103 of the Act was at odds with the ideology behind the legislation, which had been presented as a clean break for debtors.

“The understanding was that you go into this very stringent insolvency arrangement, you go on a register like a criminal, you do everything you’re told and pay everything you can for six years, and the reward for that is that you get debt write-down and start afresh,” said Mr Hall.

“Now we see the banks will have a hold on you for years afterwards. Even if you want to do home improvements or put an extension on your home sometime in the next 20 years, it will have to be done with the banks’ agreement so they can see if it boosts the value of the property.”

Minister for Justice Alan Shatter, who took charge of drawing up the legislation, rejected the criticisms. His department said last night the provision was in the legislation since the Act was in draft form and there was no stealth in its inclusion.

“The primary objective of the Act is to let individuals stay in their homes and the provision doesn’t change that,” said a department spokesperson. “The claw-back only comes into effect where somebody makes a profit on the sale of their home. There is no question of it being hidden or of any lack of transparency.”

Barrister and debt campaigner Ross Maguire said people should not be put off by Section 103. A bank may agree in any individual arrangement to waive its rights under the provision.

Mr Hall called on the Government to repeal Section 103 or risk discrediting the insolvency process and deterring thousands of mortgage holders who may decide to take the bankruptcy route instead. The Insolvency Service of Ireland begins taking applications for debt write-downs next Monday, and thousands of distressed mortgage holders, who have been unable to get their banks to accept a deal on their unpayable debts, have been preparing to enter the process.