Plan for borrowers in distress published by Central Bank

The Central Bank has published a new plan aimed at helping those in financial distress but who do not qualify for personal insolvency.

The pilot scheme will “enhance co-operation between lenders of secured and unsecured debt in order to fairly resolve distressed debt for the borrower”, according to the bank.

It is understood the scheme will in some cases include a write-down of some debt.

“Restructuring by lenders will be necessary to deal with many different indebtedness scenarios”, the bank adds in a document published on its website this afternoon.

It says many borrowers experience financial difficulties but are not insolvent. “These borrowers will not be eligible to avail of the new insolvency regime and it will be necessary for lenders to co-operate to provide appropriate solutions for such cases.

“In addition, it is likely that many other cases can be resolved by mutual effort among lenders and the borrower before the difficult insolvency stage is reached. An agreed framework is expected to reduce costs and time for the lenders to reach agreement with borrowers and will facilitate burden sharing arrangements that work sensibly for both secured and unsecured lenders as well as for the individual borrower without the need to proceed to a full debt settlement arrangement, personal insolvency arrangement or bankruptcy.”

In order to qualify for the pilot scheme, a borrower must be co-operating with their lender and must have taken steps to adjust their expenditure to “established norms. They will also have to give permission to a third party representative who will act as a go-between.

Director of Credit Institutions and Insurance Supervision, Fiona Muldoon, said: ‘The decision to enter into this pilot is a constructive step by the lenders involved to help their own customers.

She said the aim of the scheme is to “test the viability of the proposed negotiated approach and to determine its effectiveness in achieving workable sustainable outcomes for borrowers and lenders.”

She added: “We actively encourage the involvement of all lenders to ensure maximum effectiveness of this learning and information gathering pilot stage. I expect that the lenders participating in the pilot scheme will include all the main retail banks and many credit unions as well as other unsecured lenders. The Central Bank of Ireland will be closely engaged throughout the process and will oversee the pilot.”