# The PIB Bill, as proposed, makes no difference to those with unsustainable mortgages



## Brendan Burgess (25 Jan 2012)

I don't fully understand yet what is proposed. But this is what it looks like.

Secured debt will be left out of Debt Settlement Arrangements. In other words, you can get your unsecured debts such as credit cards written off over a period of time, but you will retain your house and your mortgage.  So this could be useful to someone whose mortgage could be sustainable if they escaped their unsecured debt. 

If you opt for a *Personal Insolvency Arrangement* *, *the Insolvency Trustee may propose to adjust your mortgage. But you can make that proposal now anyway. There is no need for a complex PIA which just feeds more cash to accountants and solicitors.


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## Brendan Burgess (25 Jan 2012)

*[FONT=&quot]Personal Insolvency Arrangements
[/FONT]*[FONT=&quot]The Bill (in Part 5) provides for a system of Personal Insolvency Arrangements (PIA) between a debtor and one or more creditors to repay an amount of both secured and unsecured debt over a set period.[/FONT]
*[FONT=&quot]General conditions for application for a PIA
[/FONT]*[FONT=&quot]·        A debtor will only be able enter into a PIA once in his lifetime
·        A debtor may only propose a PIA if he or she is cash flow insolvent (i.e. unable to pay their debts in full as they fall due) and it is unforeseeable that over the course of a period of time the debtor will become solvent
·        A debtor may only propose a PIA if a DSA would not be a viable alternative to restore the debtor to solvency over a five year period  
·        It will deal with debts between €20,001 and up to a ceiling of €3m
·        A Personal Insolvency Trustee, operating in a manner that is fair to all parties and having considered the full financial circumstances and advised the debtor, will make the PIA proposal to creditors and if accepted by creditors will then administer the PIA for its duration
·        A PIA will normally run for 6 years[/FONT]
  [FONT=&quot]A PIA must be supported by at least [65%] of creditors and at least [75%] of secured creditors and [55%] of unsecured creditors in terms of value[/FONT]
*[FONT=&quot]When a PIA has been agreed with creditors[/FONT]*[FONT=&quot][/FONT]
  [FONT=&quot]·        To the extent that they are not provided for in the PIA, all other debt obligations will remain
·        Creditor objections to a PIA may be taken to the Circuit Court on stated grounds
·        A PIA may be varied or terminated[/FONT]
[FONT=&quot][/FONT]


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## 44brendan (25 Jan 2012)

Hopefully we will have someone out there who can summarise the legalise into a text that is understandable!!


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## Brendan Burgess (25 Jan 2012)

In reality, this makes very little difference to people with unsustainable mortgages.

Any proposed Insolvency Arrangement must be approved by 75% of the secured creditors, so the lender can withhold their approval. 

End result - back to square one but huge fees gone to the legal and accountancy profession.

Brendan


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## Brendan Burgess (25 Jan 2012)

Why would you go to a Personal Insolvency Trustee to get this agreement? 

You should just ask your bank if they are prepared to accept it. 

It's very odd  or else I don't understand it. 

Brendan


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## 44brendan (25 Jan 2012)

I see wht you mean! Why would secured creditors agree to such an arrangement, as it would surely reduce their ability to obtain "preferential treatment" given their secured position. This doesn't appear to make sense as I can see no "next step" when an agreement cannot be reached with the required % of Creditors. By definition secured creditors would have a majority vote in an agreement reached.


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## Brendan Burgess (25 Jan 2012)

John's situation:



mortgage|300k
House value|200k
Income |30kIf John can pay the interest on €200k,  he should continue to do so and should retain ownership of his house. 

If he or a personal insolvency trustee proposes writing down the mortgage to €200k, the bank will veto it. Why should they agree? If the house value rises or if John's financial position improves, their position improves. 

So he opts for bankruptcy. Hands over his affairs to the Official Assignee who will sell the house and pay the proceeds less his costs to the bank. 

So the Bill makes no difference.

The Personal Insolvency Arrangement is unnecessary as the lender can agree this arrangement now anyway, without bothering with the expense of a PIA.

The reduction to three years makes Irish bankruptcy less unattractive than it was, but I would still go to Belfast for a year rather than wait for three years in Ireland. 

Brendan


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## Brendan Burgess (25 Jan 2012)

Mary's situation 



|AIB term loan |BoI mortgage
Loan|100,000|500,000
House value|0|200,000As Bank of Ireland represents over 75% of the credit outstanding, they can approve the PIA and it will be binding on AIB. 

Presumably the secured creditor would get the €200k and AIB would get nothing.

Brendan


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## goingforgold (25 Jan 2012)

Brendan Burgess said:


> Why would you go to a Personal Insolvency Trustee to get this agreement?
> 
> You should just ask your bank if they are prepared to accept it.
> 
> ...


 
I'd imagine as the banks are now state owned and the state have come up with this legislation that there will be some pressure on the banks to agree...I've always said debt forgiveness is dangerous territory and now we will see how it works in practice. 

Take this example. 

John: Mortgage 300k. House value 150K. Income 30K. Undeclared savings: 50K. After living expenses for he and his family he cannot sustain mortgage. He gets say 150K mortgage debt written off, retains his house and his 50K (under the mattress). This is not an unusual scenario. The state is awash with savings and a lot of undeclared savings. People have deliberately not paid off their mortgage with savings in anticipation of such legislation.


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## Sunny (25 Jan 2012)

Brendan, saw you on the news and completely agree with you. Without reading everything in detail, it seems like nothing more than a step in the right direction. Can't believe that FG and Labour having mouthed off in opposition for a couple of years can think this is satisfactory legislation. It is pandering to the banks once again. Does very little to solve the problem of unsustainable mortgages.


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## Time (25 Jan 2012)

This won't stop people going forum shopping i.e. to the UK for solutions.


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## Brendan Burgess (25 Jan 2012)

> It is pandering to the banks once again.



I don't think it's really pandering to the banks as such. It's recognising the reality of the situation. If they just allow a simple write off of debts, then no bank will lend in Ireland again. It's hard to get the balance right. But this bill doesn't do it right. To be honest, I don't think that they really understand the issues.


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## Sunny (25 Jan 2012)

Brendan Burgess said:


> I don't think it's really pandering to the banks as such. It's recognising the reality of the situation. If they just allow a simple write off of debts, then no bank will lend in Ireland again. It's hard to get the balance right. But this bill doesn't do it right. To be honest, I don't think that they really understand the issues.



It is pandering because I know for a fact what lobbying went on behind the scenes. The fact that they gave it a cautious welcome shows that. Banks should despise legislation in this area.  Banks will always lend to consumers because they have no choice. Its their business  It's like saying electricity companies won't sell electricity because some people walk away from their paying their electricity bills. The reality of the situation is that people are sitting on unsustainable debts for whatever reason. This does very little to deal with it. I am hoping the final legislation is worded better and that the decision to allow bankruptcy is taken out of banks hands.


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## Bronte (26 Jan 2012)

Right now credit card companies and banks are writing off debt so what's the real difference, they don't need legislation for that.    

I don't fully understand this legislation yet, but so far it looks like a mess, very complex, no idea on who is going to pay for the administration, no real change on the current situation as banks and creditors have to agree, looks to me like it was written by the banks, and that makes me nervous.


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## Alwyn (26 Jan 2012)

Brendan Burgess said:


> If you opt for a *Personal Insolvency Arrangement* *, *the Insolvency Trustee may propose to adjust your mortgage. But you can make that proposal now anyway. There is no need for a complex PIA which just feeds more cash to accountants and solicitors.


 
Absolutely.  

An SFS that is filled out in a MARP agreement should tell the bank what you can and cannot afford and adjust the mortgage accordingly.  No need for the PIA at all.


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## frostie (1 Feb 2012)

Regarding the risk of people forum shopping etc to the UK for the 12 month bankruptcy instead of 3 years, I can see how it will reduce this, and the benefits of it - there are a few factors to consider:
1) If the person has a disposable income in excess of £50/€60 per month, they will be subject to an income payments in both jurisdictions of three years. The new bill here seems to have considered this in the UK, and has simply rolled it up into a three year bankruptcy, ie you may be discharged after a year in the north/UK, but still have to pay the order for the next two years. Making it a three year bankruptcy makes sense.
2) You have travel restrictions imposed in the north (although no sign of it in this bill, I'm sure it will come in) where must seek permission from the official receiver to leave the country. In terms of NI, this includes the republic AND the UK mainland.
3) In relation to 2, above, where families are involved, it is a huge upheaval to break all ties, so in effect this will be beneficial to the bankrupt, as they can stay with their families, rather than spitting it up, even if only for a 'short' time.


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## frostie (1 Feb 2012)

Brendan Burgess said:


> I don't think it's really pandering to the banks as such. It's recognising the reality of the situation. If they just allow a simple write off of debts, then no bank will lend in Ireland again. It's hard to get the balance right. But this bill doesn't do it right. To be honest, I don't think that they really understand the issues.


What this might do is encourage a little more caution or at least due diligence in the banking system - we all know that the unbridled lending in the past has led to the current meltdown


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## mprsv1000 (3 Feb 2012)

goingforgold said:


> I'd imagine as the banks are now state owned and the state have come up with this legislation that there will be some pressure on the banks to agree...I've always said debt forgiveness is dangerous territory and now we will see how it works in practice.
> 
> Take this example.
> 
> John: Mortgage 300k. House value 150K. Income 30K. Undeclared savings: 50K. After living expenses for he and his family he cannot sustain mortgage. He gets say 150K mortgage debt written off, retains his house and his 50K (under the mattress). This is not an unusual scenario. The state is awash with savings and a lot of undeclared savings. People have deliberately not paid off their mortgage with savings in anticipation of such legislation.


 

you know this for a fact? and can support with hard evidence and real numbers? 
My wife lost her job as a physio. works part time now as a care worker, I've lost over 20% of my income. Had to go intrest obnly and am just about surviving, zero left at end of month. Yet my pay cuts keep the banks going
Mabye you can give me your stash of cash from under your mattress.


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## frostie (3 Feb 2012)

Sunny said:


> I am hoping the final legislation is worded better and that the decision to allow bankruptcy is taken out of banks hands.


In terms of bankruptcy, with this bill it is absolutely taken out of the banks hands. The bank has no say whatsoever if someone decides to declare themselves bankrupt.


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## Time (3 Feb 2012)

Surely they can object?


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## Brendan Burgess (3 Feb 2012)

frostie said:


> In terms of bankruptcy, with this bill it is absolutely taken out of the banks hands. The bank has no say whatsoever if someone decides to declare themselves bankrupt.



I don't think that this is correct. Surely someone applies for bankruptcy. They have to show that they are unable to meet their repayments as they fall due.

The bank could certainly object to the court. Obviously it's the judge's decision at the end of the day.

Brendan


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## frostie (3 Feb 2012)

Time said:


> Surely they can object?


Not really, the only instance would be for example if the bank beleived that the person seeking bankruptcy had a load of money under their mattress, and could show evidence to back this theory up (eg borrowing a large sum of money a few months before declaring bankruptcy etc) or if the bank thought that there was a better solution (if they were the main creditor).

This is working in reverse however. The trustee would have to look at all other avenues before bankruptcy, which is why this new bill should work. 
If the bank refuses to negotiate on negative equity or repayments on a mortgage, for example, then a PIA would fail, but the client could then persue bankruptcy. The bank cannot then object, if the bank had rejected previous attempts (under a PIA) to resolve matters. They could face a bigger loss through a debtor's bankruptcy.

Edit- It is the judge's decision, but if a person was able to meet their repayments when they fell due, why would they be even looking into this? This would be the job of the trustee, to investigate whether or not this was actually the case. The trustee has as much responsibility to the creditors, as they do to a debtor in a PIA, but in bankruptcy, the realisation of the assets for the benefit of the creditor is the main priority.


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## Brendan Burgess (3 Feb 2012)

> If the bank refuses to negotiate on negative equity or repayments on a  mortgage, for example, then a PIA would fail, but the client could then  persue bankruptcy.



Where are you getting this from? Negativeequity will have nothing to do with it, as far as I understand it. 

The criterion will be whether a borrower can make the payments as they fall due. 

Brendan


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## frostie (3 Feb 2012)

Sorry I'll clarify it - if it's a case that the debtor is just trying to walk away, it's unlikely that they will be made bankrupt, just for the sake of discharging the negative equity. If the debtor can make the repayments, then they should continue to do so, that would be the view of any court. These measures are not a generalised debt write-off system, they are designed for people in financial difficulty.

But, where the borrower's mortgage is unsustainable, and they can't meet the repayment, negative equity can be brought into the mix in the PIA - it's a negotiation, and as has been stated on here previously, and as we know write-offs in settlement are happening already. But these are normally where the debtor gets the best price and settles in final, and the bank takes a hit for the money. 

The banks do not want a raft of property on their books. If restructuring a mortgage until the borrower is 100 years old isn't going to be workable in reducing the payments to an affordable amount, then the bank can either
a) let the borrower declare themselves bankrupt, and official receiver recovers the value of the asset 
b) seek repossession, as they have security over the asset, they sell it themselves, and the borrower declares bankruptcy on the balance of negative equity
c) restructure the mortgage so that the borrower can afford the repayment, and if this requires debt write-off to enable this it could result in a better deal for both the bank and borrower.

There is nothing I can see in this bill precluding negative equity negotiation - where the mortgage as it stands is unsustainable - (it doesn't have to be for the full value of the negative equity - as long as the mortgage balance reduces, it could be workable), and if it works for the lender and the borrower, why not!


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