REPAYMENT: What happens when someone falls into debt with multiple creditors?

It's a very frightening situation to be in and very often the person refuses to deal with the problem. They don't open or respond to mail and generally try to ignore the issue for as long as possible.

This kind of reaction makes it more likely the debtor will end up in court and possibly even in prison.

The Money Advice and Budgeting Service (MABS) is engaged on a daily basis in helping people who are over-indebted.

Some years ago MABS approached the Irish Bankers' Federation (IBF) suggesting they explore the possibility of introducing a voluntary debt-settlement arrangement on a pilot basis.

The pilot scheme, which will benefit over-indebted consumers and creditors who are on the point of taking legal action to recover outstanding debts, will finally begin next month.

Mr John Collins, president of the IBF, said the "Fresh Start" scheme represented a number of fundamental concessions from participating creditors.

Once a debtor has successfully completed a repayment programme agreed under the pilot, the slate will be wiped clean of existing debt, mortgages and other secured debt excepted.

"The idea is to test if there is a better way of dealing with debt that is more beneficial to both sides," Mr Liam Edwards of MABS explained.

"Consumers will be saved the trauma of the legal process and creditors will get their money and maintain their good relationship with customers," he said.

Under the scheme, all efforts will go into negotiations between the MABS money adviser and the various creditors involved to identify a repayment programme that is affordable for the debtor and acceptable to all the creditors involved.

As appropriate, the services of a specially-appointed conciliator will be called upon.

"It's ideal for dealing with multiple debt situations. In the existing system, very often the creditor who makes the first legal move gets the best satisfaction, while others down the line get less," Mr Edwards said.

The maximum period for the repayment programmes agreed under the scheme should usually be no longer than five years.

The scheme can also allow freezing or reduction of interest during a repayment programme and the write-off of residual debt on successful completion of the programme.

This will be determined on a case-by-case basis.

The pilot scheme also accepts the need for income retention at a level which, after debt repayment, should amount to more than a mere basis for survival and will be attractive and sustainable enough to encourage debtors to participate.

The debtor's home is excluded as an asset under the pilot and the scheme is confidential and free.

It will operate in Bray, Co Wicklow, and Dún Laoghaire, Fingal and Finglasin Dublin, over a six-month period beginning on June 1st.

As soon as possible after the six-month trial period, the conciliator of the pilot scheme Mr Colin Walker will complete a report on how it has operated. It is hoped that the value and merits of this model of dealing with consumer over-indebtedness will be demonstrated with a view to introducing it across the State.

Every week, individuals are sued in consumer debt cases and in certain circumstances, especially when the person fails to turn up, these cases can lead to committal.

"The pilot debt repayment programme is a much more civilised way of dealing with the situation," Mr Edwards said.