Skip to main content

Personal Debt Crisis Solutions...

Finding new ways to solve the personal debt crisis

Many homeowners have trouble making monthly repayments but there are ways to ease the burden...

WITH about 86,000 homeowners now struggling to repay their mortgage, and four times more debtors seeking free legal advice than did in 2007, Ireland is in the midst of a personal debt crisis.

We need solutions, and we need them quickly. What could they be?

Write off mortgages

A homeowner who is battling to repay a massive mortgage should be allowed to write off some of their loan, according to Michael Dowling, spokesman for the Independent Mortgage Advisers' Federation. This should make their mortgage more affordable and prevent them from either having to sell their home at a lower price than they paid for it -- or having it repossessed.

"We need long-term solutions," said Dowling. "No one should be asked to leave their family home. But to make the debt-forgiveness solution palatable to other homeowners who are managing to repay their mortgage, a homeowner who has some of their debt written off should lose part of the ownership of their home. Their shareholding in the property might be reduced to 80 or 90 per cent, for example. Otherwise, people who can afford to repay their mortgage might say 'Well I may as well stop paying my mortgage and get my debt written off'."

After a bank writes off some of a householder's mortgage, the homeowner should be given an incentive to meet the repayments on their new mortgage. "The homeowner could win back some of the property portion they lost if they continue to meet their mortgage repayments as required over the next five or 10 years," said Dowling.

Cap mortgage repayments

With 441,000 people on the dole, many of those who took on mortgages during the boom years have either lost their jobs, or have a spouse or partner who is out of work.

Dowling believes that mortgage repayments should be limited to a portion of a borrower's current income. "If someone has lost their job -- or has taken out a mortgage with someone who is out of work -- the repayments should be capped to a percentage of their income," he says. "This will give them time to work themselves out of the difficulties they're in. Repayments could be capped by extending the term of the mortgage -- or allowing the borrower to repay only the interest on the loan."

Improve state support for struggling homeowners

If you are struggling to repay your mortgage, you may qualify for the mortgage interest supplement -- a state scheme designed to ensure that your income after paying the interest on your mortgage does not fall below a minimum level.

However, many of those struggling with mortgages are not able to claim the supplement because the income threshold for the scheme is too high, according to Paul Joyce, a senior policy researcher with the Free Legal Advice Centres who was also on the debt review group appointed by the then government last year.

"The mortgage interest supplement is still very restrictive," said Joyce. "The income threshold could be reduced."

Reform THE bankruptcy lawS

Most debtors are dragged through the courts by those seeking to get back the money they're owed.

Joyce believes that an out-of-court solution must be introduced for those struggling with debt. "Most debtors can't afford the huge cost of going to court," said Joyce. "A lot of these people don't engage with the courts as they are seriously intimidated by the legal system, don't have access to representation and feel the odds are stacked against them. But bankruptcy should still apply to high-end debt cases where assets have to be valued and so on."

One such out-of-court solution could be a debt-settlement arrangement, similar to a system in Britain known as an Individual Voluntary Arrangement (See below).

"The debt-settlement arrangement should be enacted as soon as possible," said Jim Stafford, managing partner of Dublin-based liquidator Friel Stafford. "This arrangement would be for debtors who 'can pay' at least some of their debt.

"Under the arrangement, the debtor and creditors would make a legally binding commitment in which the debtor would repay an agreed amount of personal debt to creditors over a period of up to five years. At the end of this period, the debt would be deemed to be repaid in full and the debtor would be able to make a 'fresh start' without having any damage to their personal credit rating."

Stafford said that debt-settlement arrangements would only be available to people who acted in good faith and were honest about the assets they own.

"If they do not, the arrangement would automatically end and the debtor could be prosecuted," said Stafford.

But some debtors need a more radical solution. Debt-relief orders, similar to those already in Britain, must be considered for people who have no income and no assets, according to Joyce.

"These orders may be needed for people in debt whose only source of income is social welfare," said Joyce.

With debt-relief orders, creditors are not able to chase a debtor for unpaid debts. If the debtor's financial circumstances have not improved a year after the order is issued, the debt is usually written off.

Article by Louise McBride - Irish Independent

Popular posts from this blog

Ireland's Celtic Tiger Excesses...

'Bang twins' may never get to run a business again... POST-boom Ireland is awash with cautionary tales of Celtic Tiger excesses, as a rattle around the carcasses of fallen property developers and entrepreneurs will show. Few can compete with the so-called Bang twins for youth, glamour and tasteful extravagance. Simon and Christian Stokes, the 35-year-old identical twins behind Bang Cafe and exclusive private members club, Residence, saw their entire business go bust with debts of €9m, €3m of which is owed to the tax man. The debt may be in the ha'penny place compared with the eye-watering billions owed by some of their former customers. But their fall has been arguably steeper and more damning than some of the country's richest tycoons. Last week, further humiliation was heaped on them with revelations that even as their businesses were going under, the twins spent €146,000 of company money in 18 months on designer shopping sprees, five star holidays and sumptu

I fear a very different kind of property crash

While 80% of people over 40 own their own home just a third of adults under 40 do. This is disastrous for social solidarity and cohesion Changing this system of policymaking requires a government to act in a way that may be uncomfortable for some. Governments have a horizon of no more than five years, and the housing issue requires long-term planning. The Department of Public Expenditure and Reform was intended to tackle some of these problems. According to its website its remit is to “drive the delivery of better public services, living standards and infrastructure for the people of Ireland by enhancing governance, building capacity and delivering effectively”. So how is the challenge of delivering homes for people in 2024 and beyond going to be met? The extent of the problem is visible in the move by companies, including Ryanair, to buy properties to house staff. Ryanair has, justifiably, defended its right to do so. IPAV has long articulated its views on how to improve supply an

Property Tycoon's Dolce Vita Ends...

Tycoon's dolce vita ends as art seized... THE Dublin city sheriff has seized an art collection and other valuables from the Ailesbury Road home of fallen property developer Bernard McNamara. The collection will be sold to help pay his debts. The sheriff, Brendan Walsh, is believed to have moved against the property developer within the past fortnight, calling to his salubrious Dublin 4 home acting on a court order to seize anything of value from his home to reimburse his creditors. The sheriff is believed to have taken paintings from the family home along with a small number of other items. The development marks a new low for Mr McNamara, once one of Ireland's richest men but who now owes €1.5bn . The property developer and former county councillor from Clare turned the building firm founded by his father Michael into one of the biggest in Ireland. He is the highest-profile former tycoon to date to be targeted by bailiffs, signalling just how far some of Ireland's billionai