Borrowers to write off loans after 3 months

A new insolvency arrangement with some of the State’s key banks could see homeowners walk away from unsustainable debts after just three months.

A number of lenders, including AIB, EBS and KBC, have agreed to allow indebted borrowers to write off their debts from both mortgages and personal debt such as credit cards or car loans after just three months.

In order for any debtor to take advantage of these deals they first have to qualify for Personal Insolvency Arrangement (PIA). The PIA application has to be made through a Personal Insolvency Practitioner.

David Hall of the Irish Mortgage Holders Association described the new accelerated PIA as a “revolution” in the insolvency process as instead of three years it is finished in three months. Unlike the current bankruptcy, where the banks can lean on your income for up to five years after you exit the process, with the PIA once it is over the debtor is free.

“This structure will allow some real movement in the insolvency system, and more importantly, allow people in serious debt to avoid long-term insolvency arrangements and bankruptcy terms. This will allow individuals and families to have a fresh start and contribute to society quicker by becoming debt free through a formally binding, legislative framework. For those whom this is suitable it will provide the shortest effective bankruptcy term in the world,” he said.

Mr Hall said it was surprisingly easy to get the banks to agree to the new accelerated three-month bankruptcy as they realise that a lot of the people who will qualify simply have no money.

“If you are goosed, you are goosed,” he said.

The banks were facing into a situation where they would have to appoint receivers and get sheriffs to seize peoples homes and go through a lengthy and costly court process.

Under the new arrangements people can surrender their home or if they have a buy-to-let property that is causing issues they can surrender that. Mr Hall said there is a third avenue of a lump sum release payment that people can raise from family and friends to try and stay in their homes.

He said there was no question of the banks being able to cherry pick who would avail of the new arrangement as there are strict guidelines set out as to who can enter into the insolvency process.

“The only reason that a bank wouldn’t engage in something like this is that they want to torture people and drag it out for longer and that is just not acceptable,” he said.

The only practitioner to successfully get an Accelerated Personal Insolvency Agreement (PIA) through the court process, Mitchell O’Brien, Dungarvan, said in his experience it should be possible for debtors to keep their homes.

“The accelerated PIA will be able to keep people in their homes as long as the repayments fall within the reasonable living standards,” he said.