Debtors opting for bankruptcy over insolvency

An increasing number of householders in debt are choosing bankruptcy instead of the new insolvency regime under new, less-restrictive rules in operation since March.

More than 360 people were declared bankrupt in Ireland from March to December, new figures show. Of those, 102 were clients of Neo Financial Solutions, which was granted a total of €64.2m in debt write-offs.

The new bankruptcy rules which came into effect in February and delivered a final debt solution for 102 clients of Neo Financial.

The bankruptcy rules changed as part of the introduction of the new personal insolvency regime.

Some of the major changes introduced included a reduction in the bankruptcy term from 12 to three years and the ability of a debtor to declare themselves bankrupt.

During the first 10 months of the operation of the new rules, more than 360 people availed of bankruptcy, of which 102 were Neo Financial clients. By comparison, only 58 people sought bankruptcy in 2013.

The total aggregate amount of bankruptcy debt for Neo Financial clients amounted to €85.4m, of which €73.4m (86%) was secured debt and €12m (14%) was unsecured.

All of the unsecured debt was written-off. Of the secured debt, a total of €52.2m (71%) was written-off.

Of the 102 Neo clients who declared bankruptcy, a total of 41 people were able to keep their family home while the other 61 people either had already left their family home or were willing to surrender their family home after bankruptcy.

Announcing the bankruptcy results from Neo Financial yesterday, chief executive Paul Carroll said: “The large take-up in the self-petitioning of bankruptcy by people in debt is an indication of the significant problems still remaining as a direct result of the economic crash.

“I expect when people realise that they can get full relief immediately from their debts these numbers will increase dramatically in 2015.

“There are currently 57,778 family home mortgages in arrears of over two years with a total value of €8bn and the majority of these are facing bankruptcy at some stage in the near future.”

He added: “This problem is not going to go away with reductions in Insolvency Service of Ireland fees or changing insolvency protocols. More and cheaper accesses needs to be given to people who wish to go bankrupt and soon.

“The failure of the new personal insolvency provisions to deliver any meaningful debt solution to people is an indication that the new law is not fit for purpose.

“The act of reducing fees for an insolvency application is welcome but does not address the real issue that insolvency does not work. Currently bankruptcy is the only solution for people in debt and the time in bankruptcy should be reduced again to one year.

“People in the Insolvency Service of Ireland, Government, and other organisations need to stop pretending we have a suite of solutions and make the one solution to guarantee debt freedom more accessible and less costly to debtors,” Mr Carroll said.