Mortgage writedowns secured in up to 40% of formal debt deals

Borrowers in financial difficulty manage to secure debt writedowns on mortgages in up to 40 per cent of personal insolvency deals, new figures from the State’s insolvency service show.

The Insolvency Service of Ireland (ISI) said that in a representative sample of personal insolvency arrangements (PIAs) – deals that allow insolvent borrowers escape unaffordable debts – agreed from late 2021 to the end of 2022 about 30-40 per cent involved a write-down of mortgages.

In those cases, mortgage debts were written down 15-34 per cent, according to figures provided by the State agency, whose objective is to return financial distressed borrowers to solvency.

The sample covered about 20 per cent of PIAs approved in this year-long period and excluded a small number of atypical PIA cases involving tens of millions of euro in debts being written off.

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Most unsecured debts such as personal loans or credit card debts were almost fully written off in PIAs.

“Any residual unsecured debt gets written off at the successful conclusion of the PIA. The write-offs we see on unsecured debt in PIAs in the sample are typically 95 per cent,” said the service.

[ The Irish Times view on debt write-offs for borrowers: transparency is important ]

Debt writedowns have become the focus of increased scrutiny in recent weeks after the multimillion euro debt write-down agreed informally by majority State-owned bank AIB with former Kilkenny hurling star DJ Carey drew public and political criticism.

Mr Carey had more than €7 million worth of debt written off a €9.5 million judgment owed to AIB.

Last year, just over 800 PIAs addressed a total of €632 million worth of debt. This included some €171 million written off in an arrangement agreed for the Cork dentist turned property developer Barry Harte arising from legacy debts relating to his collapsed property portfolio.

“It is very exceptional for a PIA to involve debts of this size,” the service said, without referring to Mr Harte by name in the agency’s response to queries from The Irish Times.

The average level of debt addressed in PIAs last year was €571,000, while the average level of mortgage debt tied to the borrower’s home being addressed was €271,000. The average level of non-mortgage or other debt addressed in arrangements was €300,000.

[ Why AIB didn’t treat ordinary borrowers the way it treated DJ Carey ]

The vast majority of PIAs addressed total debts involving six-figure sums, with 74 per cent of PIAs resolving debts below €500,000. Just 11 per cent involved total debts of €1 million or higher, while only 1.5 per cent of PIAs involved total debts of €3 million or higher.

The bulk of mortgage debt addressed in individual PIAs were six-figure sums, with 89 per cent of mortgage debt in average PIAs being below €500,000. Just 1.5 per cent involved debts of €1 million or more. Some 95 per cent of non-mortgage debts addressed were below €500,000.

The service said it had no involvement with informal debt write-down arrangements agreed by banks and other lenders outside formal PIAs and directed further queries to the Central Bank.

A spokeswoman for the Central Bank said it acknowledged writedowns were “one component in a suite of tools” used by lenders to help financially distressed borrowers.

“While we collect data on debt forgiveness and it is used to inform the Central Bank’s policymaking, we do not currently publish information relating to debt forgiveness,” she said.

AIB told an Oireachtas committee earlier this month that it agreed debt writedowns of more than 90 per cent with about 1,900 borrowers in informal deals outside the PIA process since 2015.