Call to overhaul ‘failed’ insolvency service

A mortgage expert has said the Insolvency Service of Ireland has "failed" and called for an overhaul of how insolvency is managed.

ISI was set up in March 2013 under the Personal Insolvency Act to provide debt relief mechanisms to those facing insolvency, or the inability to service their existing debts.

One of the key debt relief mechanisms was personal insolvency arrangements, as they dealt with secured debt such as mortgages. Figures for the second quarter of this year showed that in the space of three months, just 27 such arrangements were approved by creditors.

David Hall of the Irish Mortgage Holders’ Association said considering the purpose for which ISI was set up, it had “unfortunately failed”.

“If you have got 130,000 people in mortgage arrears, you would imagine there would have been an unmerciful rush to the door to get resolutions for people who are in difficulty in debt,” he said. “Yet in the second quarter they only did 27 personal insolvency arrangements relating to property.”

One of Mr Hall’s key concerns is the power given to creditors over an indebted person’s application for a debt solution. “They have the veto, so are effectively controlling the whole system,” he said.

Another key criticism was that already financially crippled debtors are being asked to pay €500 to get themselves in a position to negotiate with a creditor through the services of a personal insolvency practitioner (PIP) without any certainty of a successful outcome.

“You cannot ask someone to pay €500, possibly pay a PIP, to find out what the creditors’ view is. You can only make an application for a personal insolvency arrangement once a year. Someone might not take you onboard depending on who your creditor is.”

He also raised concerns over the motivation of PIPs, as they were allowed to advertise their services based on their success rate.

Mr Hall said there needed to be a more effective and attractive options for those in arrears. He said a one-year bankruptcy would help as it would “focus” creditors.

An ISI spokeswoman insisted the service it has in place is working as, unlike any other options, the debt solutions are “based in processes established in law”.

“This legal footing gives certainty and protection to debtors. The ISI will launch an information campaign later this year to reinforce the message that there is a solution for everyone faced with insurmountable debt.”

She said protocols were being established which should make the insolvency application process more straightforward for creditors, practitioners, and debtors.