State debt agency to waive fees to encourage more clients

The State agency set up to help free ordinary people from unmanageable debts has a fraction of the clients it expected despite the massive level of household mortgage, loan and credit card arrears in the country.

Lorcan O’Connor, director of the Insolvency Service of Ireland (ISI), admitted the numbers using the service were “exceptionally low” as he announced a number of incentives to persuade people to come forward.

Until the end of next year, the application fee, which can be up to €500, is being waived for all new applicants, and a payment of €750 will be made towards the costs incurred by a personal insolvency practitioner (PIP) in preparing a debt resolution plan that is subsequently rejected by the creditors.

Latest figures show just 80 personal insolvency arrangements have been approved since the ISI began a year ago. PIAs are for people with combined mortgage and other debts they cannot pay and were expected to be the ISI’s main business.

Just 58 debt settlement arrangements — for people with more €than 20,000 in unsecured debts such as credit card arrears and overdrafts — have been approved as well as 172 debt relief notices for people with unsecured debts of less than €20,000. That’s a total of 311 arrangements when the ISI expected to be handling 7,000 a year.

PIAs and the other arrangements involve a mix of debt write-off and reduced debt repayments for 3-5 years after which the applicant is either declared debt-free or left with a manageable debt.

One criticism of the system is that creditors have a veto over any proposed arrangement but Mr O’Connor denied this meant the ISI system did not work. “We cannot deny the fact that the numbers are exceptionally low,” he said, but he said the service’s very existence was encouraging banks to make informal debt write-off deals.

“This problem started around 2007/2008 but it was only this time last year that banks began really engaging with debtors who were in difficulty and I believe it’s no coincidence that it was this time last year that the ISI became open for business. I think we have been an extremely important catalyst to facilitating those informal deals.”

One of the new measures — the €750 fallback payment for PIPs — is to encourage more PIPs to take on cases as currently, if a debt resolution arrangement is rejected, a PIP does not get paid.

Mr O’Connor said 72% of arrangements were accepted but the rate should be at least 95%. “If banks are acting rationally there would be very little failed PIAs as you’re being offered something that is better than what you would get in bankruptcy.”

The ISI is beginning a major publicity campaign with local information meetings to try to get more people to come forward.

Details are on www.backontrack.ie