Number who can’t repay debt set to surge

John O’Callaghan, personal insolvency practitioner, said people are contacting him “in great emotional distress”, having lost jobs and terrified they will lose their homes once the courts reopen.

An insolvency expert is predicting a “dam burst” in the number of households unable to make mortgage payments as a result of the Covid-19 crisis in the coming months.

John O’Callaghan, vice chair of the Association of PIPS (personal insolvency practitioners), said he expects thousands more householders to join the tens of thousands who are still dealing with the fallout of the 2008 financial crisis.

“The numbers who have been dealt with since the 2008 downturn equates to the bit of the iceberg above the water. There are still about 40,000 households that are not sorted,” said Mr O’Callaghan.

A former banker who is now working with consultants KPMG, Mr O’Callaghan said people are contacting him “in great emotional distress”, having lost jobs and terrified they will lose their homes once the courts reopen.

He said one member of his team, who previously worked with Tusla and as an addiction counsellor, recently told him his client base was full of people who were candidates “for stroke, heart attack, cancer, or even suicide”, such is the stress they are under.

He said people are terrified of the word “insolvent”, often equating it to bankruptcy, but it is his view that personal insolvency solutions in Ireland are in fact “the people’s bailout”.

Insolvency — the inability to pay debts as they fall due — could be addressed by going to a PIP who would help them work out a personal insolvency arrangement (PIA), said Mr O’Callaghan.

A PIA, drawn up by a PIP, is a formal agreement with all your creditors that will write off some of your unsecured debt and restructure any remaining secured debt.

It provides for the restructuring or settlement of secured debt up to €3m, and the settlement of unsecured debt over a period of six years.

Secured debt is where the lender can take possession of collateral if you don’t repay the loan as agreed, eg mortgage/house repossession.

An example of unsecured debt is credit card debt, where there is no collateral.

If you keep to the terms of the agreement, your remaining debts to your unsecured creditors will be discharged after six years.

You will still be liable for secured debts, albeit they have been restructured.

Mr O’Callaghan said it is his opinion that PIAs are a lifeline for people.

In its third-quarter report for 2019, the Insolvency Service of Ireland found 271 PIAs were approved in July, August, and September last year, a drop of 11% on the third quarter of 2018.

The total debt involved in the 271 approved arrangements is about €70m, the bulk of it relating to mortgages.

Recent court cases relating to use of PIAs have featured a number of high-profile couples, including the former RTÉ presenter Theresa Lowe and her musician husband Frank McNamara, who secured a €2.9m debt write-off.

Fianna Fáil finance spokesman Michael McGrath has said the number of PIPs needs to be increased to address “the inevitable economic fallout” from the Covid-19 crisis.