Banks will be “more likely” to do deals to write off debt and save family homes

He said those seeking protection from creditors before 2019 may have had a 50 percent chance of getting a PIA, a deal that allows debt to be written off and the family home secured.

“Now is your chance to get closer to 70 percent to reach an agreement,” McNaughton said in comments that will give hope to thousands of people with mortgage arrears. PIAs are the most popular of three debt settlement mechanisms introduced by the Personal Bankruptcy Act of 2012.

Until then, the only way to resolve unsustainable debt was by going bankrupt for 12 years. A PIA allows for the resolution or restructuring of secured debt up to a total of €3 million and unsecured debt for a period of up to six years.

Since the law was introduced until the end of last year, 6,134 PIAs have been approved, covering hundreds of millions of euros in debt.

Last year, 925 PIAs were approved. In comparison, there were only 199 bankruptcies.

The trend comes despite fears in recent years that controversy could damage confidence in the system.

In 2020, Judge Denis McDonald called for a “change in approach” from personal bankruptcy practitioners (PIPs) and advisors because the system was “plagued by legal troubles and contentious cases.”

The same judge was involved when businessman Conor Clarkson’s bid for a PIA was withdrawn in 2019 after he was found to have forged a document.

More recently the Irish Independent revealed how convicted thief Tom Colton and his wife Linda failed to declare a luxury Spanish villa as they wrote off debts of €2.7m and €2m respectively.

The pair are now at risk of losing their PIAs.

There has been further controversy in recent weeks when it emerged that a PIP overstated the amount of tax collector Jay Bourke’s preferential debt to the Revenue Commissioners, a matter Mr Justice Mark Sanfey said he took “very, very seriously”.

However, Mr McNaughton said trust between creditors and PIPs had improved since Mr Justice McDonald’s comments in 2020 and this was backed up by statistics.

“The judge’s comments were valid and they helped. If you see vulnerabilities in specific applications, report them. He did and the PIPs listened,” Mr McNaughton said.

He said the comments “draw attention to the fact that PIPs really need to stay on the ball, especially when it gets into a court case” and that the bankruptcy system is built on trust and professionalism.

Mr McNaughton said there could be serious consequences for debtors who mislead their PIP and the courts.

“The Personal Insolvency Act gives you the opportunity to start over if you have unsustainable debt. But in return, debtors are required to act in good faith and fully disclose all their financial circumstances to their PIP,” he said.

“Failing to do so can bring a PIP or creditor to the courts if they believe there has been a material misstatement of facts and you can have this Agreement terminated.

“So you’re back to square one. All of your debt will be restored and you will no longer have access to a PIA.

“It is also a criminal offense to knowingly or recklessly provide information that you know is materially false or misleading.”

Signs of renewed trust between creditors and PIPs were seen earlier this year when Start Mortgages issued letters to struggling debtors. These highlighted the benefits of PIAs and provided details of seven PIPs that Start deemed “positive and supportive in dealing with debtors and lenders.”

The ISI director, a former banker who worked on debt restructuring and insolvency cases at KBC Bank and Ulster Bank, said when people get into financial trouble “they tend to ignore it” and “wait until they get one.” Received letter to appear in court” before seeking help.

“They ignore it because it can be quite daunting when you’re dealing with unsustainable debt,” he said.

“They tend to leave the letters unopened. They tend not to want to face the problems. Sometimes they wait until it’s almost too late.”

Mr McNaughton said part of the reason for this could be a sense of shame. “It shouldn’t be there [shame],” he said. “It’s just part of doing business. You take on debt. You get into trouble for one reason or another. It can’t be your fault at all. The system should give you a way to solve that.

“The advice I would give is to pick up the phone and talk to a PIP. Bring your information and they will take it all in and interpret it for you. I think you will immediately feel a sense of relief.

“People think their situation is impossible, but there is no situation that is so impossible.”

Mr McNaughton said there was evidence PIAs were achieving “innovative” solutions such as: B. the restructuring of loans over longer periods.

This has been observed in a number of recent cases, including one in which a couple’s mortgage term was extended until the wife was 115 and the husband 106. The extension of their residual maturity from 16 years to 57 years was proposed by lender Permanent TSB last year. Shortly after, Fed Deputy Governor Ed Sibley called for “major innovation” in dealing with older borrowers in mortgage arrears.

In this case and similar cases, the lenders are ultimately repaid from the lenders’ estate after their death while the debtor can continue to live in their home.

Another emerging trend is that where creditors refuse a PIA, banks and funds are less likely to pursue their appeal should the debtor appeal to the High Court under Section 115a of the Act.

Mr McNaughton said some institutions lost about 60 per cent of those cases and incurred legal costs.

In the first quarter of 2021, there were 80 Section 115a requests, of which 69 percent were objected by creditors. In the same quarter of this year, there were 60 such requests, but creditors rejected only half of them.

Mr McNaughton said another sign of increased confidence was that some banks and funds are now meeting with PIPs on a bilateral basis to discuss issues.

The ISI itself had worked with banks and funds, the Central Bank, the Banking & Payments Federation Ireland and the Irish Banking Culture Board.

“I talk to them to convince them of the possibilities of personal bankruptcy. It’s nothing to be afraid of,” McNaughton said.

“There are ways for banks to solve their bad loan books much more productively and cheaply than going to court.

“There are still 21,000 mortgages that are two years or more in arrears. That number is falling, but not falling fast enough.”