25% surrender homes voluntarily in debt deals

One in four people entering insolvency negotiations with creditors have voluntary surrendered their homes, a firm working in the sector said this morning.

Grant Thornton Debt Solutions, which operates as a personal insolvency practitioner (PIP), said before it submitted clients' paperwork to the Insolvency Service of Ireland it engaged in pre-negotiations with creditors. In 80 per cent of cases it received approval in principle from stakeholders to do a deal.

As part of a personal insolvency arrangement, 25 per cent of the 20 cases dealt with so far opted for voluntary surrender of property. This effective returning of the keys to their properties to the bank, allowed debtors to leave behind unsustainable mortgages, GT Debt Solutions said.

"This is an important milestone for those seeking to avail of the new legislation and offers a real structure and light at the end of the tunnel for those with unmanageable debts," said Stephen Tennant of GT Debt Solutions.

“We can see that the market is now starting to find its feet, and that industry protocol is beginning to develop. There is a realisation that the legislation, while not perfect, offers a strong basis for individuals with multi creditor exposures to deal with their financial problems in a systematic fashion.”

He said that when it came to debt settlement arrangements, the company was seeing “quite a few people who are in a position to service their family home mortgage but are under significant pressure from their unsecured creditors which is putting great financial stress on people, we are finding that a lot of these families are living on less than the reasonable living expenses and this new Act is offering real relief to them.”

The company said 85 per cent of cases involved families with children with applicants for one of the insolvency arrangements coming from a cross section of occupations including public servants, office workers, sales assistants and tradesmen.

Bankruptcy legislation is likely to be commenced next week and will shorten the period from 12 years to three and should significantly strengthen the hands of many heavily indebted people who are struggling to do deals with their banks.

Earlier this week a Donegal civil servant become the first person in the country to have a debt settlement arrangement agreed by his creditors. Three of the country’s major banks were involved in the arrangement, provided for by new legislation, along with three other creditors. The man in his 40s had unsecured debts of more than €100,000 after the collapse of his business.

The head of the Insolvency Service of Ireland Lorcan O’Connor said it was “positive to see the first case over the line” and said that the ISI had started seeing engagement by the banks. “If banks start doing deals hopefully people who thought they would have to use the insolvency service will be able to come to arrangements independent of us.”

He said that the IS had never suggested spending guidelines would be “draconian” and said they were “always just a guide. The default position was that someone would not have private health insurance or a second car but if someone is in poor health then it makes sense that they be allowed to keep their health insurance or if they need a second car to travel to work then that should be allowed.”

Meanwhile, the Central Bank has published a consultation paper which sets out additional consumer protection requirements which will apply to debt management firms.

All companies will have to give customers more information about charges while a standardised method of financial assessment will have to be adopted which considers the full range of debt solutions available to consumer.

It will also have to provide a statement of suitability which will include a description of the actual or potential risks and consequences of the proposed course of action offered to consumers.