Should the debtor's home be excluded from a debt settlement scheme?

[Brendan Burgess]

18.[FONT=&quot] [/FONT]Which assets should be exempted from sale and distribution to creditors under formal bankruptcy procedures? [Paragraph 5.158]
19.[FONT=&quot] [/FONT]What approach should the proposed debt settlement system take to the debtor’s home? In particular, in which circumstances should the debtor’s home be protected from sale, and in which circumstances should the debtor be required to sell his or her home? [Paragraph 5.164]

 

[Bronte]

18.Which assets should be exempted from sale and distribution to creditors under formal bankruptcy procedures? [Paragraph 5.158]
19.What approach should the proposed debt settlement system take to the debtor’s home? In particular, in which circumstances should the debtor’s home be protected from sale, and in which circumstances should the debtor be required to sell his or her home? [Paragraph 5.164]

Point 18, I agree that family homes should be exempted from sale unless it if of an unreasonable value. For example if you own a home worth 10 million than that can't be right that you would keep it. But if you owned a modest home (3/4 bedroom family home) that would be ok. The person with the 10 Million home should be allowed to sell it and purchase a modest home.

The problem with all this is that people used the equity in your family home to purchase investment/holiday property and also as a means of taking equity out to live on. Perhaps family homes should not be allowed to be used as leverage in the future.

 

[pjmn]

Understand the thrust of this - however, if in effect the family home is no longer available as security to a mortgage provider, then they will a) either not lend based on that asset, and will seek other security, which the vast majority of say first time buyers won't have or b) on the basis they look upon this as unsecured lending they will jack their margins substantially (which would probably force many first time buyers out of the market or finally c) they will only lend to a very low ltv (say 25% - figure is pure conjecture on my behalf just to make the point).

So while the action of excluding the family home from a debt settlement is quite understandable for those in financial difficulty and may have no way out in the short/medium term, I think the knock on effect will be felt by the new 'buyers' .... not an easy one to solve....

 

[Latrade]

I can actually see this part being more problematic than any other. Not so much the specifics of a house, but at what level do you set a standard of living and who sets it? Would a generic code/standard work across the whole country or would we rely on the individual overseeing the case and their decision?

Personally, however, I feel the house should be included. Though to sit on the fence, depending on the circumstances it could be excluded.

For example:

Family have large house in rural area, debt problems etc. However father and mother work at the widget factory 4 miles away. Widget factory is the only employer in general area.

Against a benchmark their house may appear too much of a luxury for them and their family. However, the only available housing within that benchmark is within the nearest town/city which would mean relocation and mean greater burdens on getting to work, schooling, etc etc, potentially meaning that there is overall less money to satisfy the debt than if they remain in the larger house.

 

[Brendan Burgess]

I don't even know why this question is being asked?

If my liabilities exceed my assets, my assets should be sold to pay for my liabilities. The only exception might be a small amount of tools to allow me to continue in my trade.

Calling it "the family home" in some way confers a sacredness on it. We should not be doing this. If people lived a very high lifestyle and are now overborrowed, then they have to pay the price.

The objective of this legislation is to give people a fresh start. It is not to put them up 3 rungs on the housing ladder.

PJMN makes the very valid point that if the lender's security over the family home is threatened, we will all pay for it in terms of higher borrowing charges. The financially responsible/successful will subsidise the irresponsible/unsuccessful.

But I don't think that anyone is proposing that bank's security should be reduced. What is being asked is "If there is equity in the family home should the house be sold to pay off other debts?". I think it should.

Excluding the family home would have all sorts of negative implications. If I anticipated financial trouble, then I would make payments on my mortgage ahead of everything else as that would be a way of protecting my money from my creditors.

If one argues that the family home should be exempt, then it should be argued that someone who is insolvent but who is renting should not have to pay any rent to their landlord.

I fully appreciate that the family home is special. That efforts should be made to keep it. But it should be on the table if someone is being given a generous tax settlement that will otherwise wipe out their debts and give them a fresh start.

 

[jack2009]

Perhaps the home should be "protected" if the the property has negative equity and therfore to include the property would create an adverse problem effect to the rest of the creditors.

Otherthan that I fear that any attempt to create reasons as to why the family home will end up being abused!

 

[ontour]

what if the home is a "trophy home"? They should definitely be included........off to grow a beard and buy leather elbow patches........

I was interested in the case of the [broken link removed]where the family home was sold recently. There may have been a plethora of other reasons why the family home was sold in this case.

 

[Bronte]

Ontour I don't get your point? They both as a couple overextended themselves. Interesting that the wife did not even know what she did or did not own though.

The family home protection act was brought in primarily to protect women in cases where the husband mortgaged the family home. But it seems incredible in this day and age that a spouse could be signing documents for the other spouse and not know what was going on.

 

[Bizzy]

The discussion paper has a significant focus on identifying 'Can't pay' -v- 'Won't Pay'. In relation to unsecured lending the Creditor/Finance co can seek a judgement. They can seek to have judgement registered against the home. In theory they can seek a Court Order for the home to be sold, but this is rarely allowed. The Judgement against the home (a judgement mortgage) means the lender will be paid in full on the sale or transfer of the home (subject to sufficient equity after mortgage cleared). So on sale or death the loan is cleared.

Alternative to this route is where the creditor can seek an Instalment Order from the Court for the debt to be paid in instalments. Up to recently, failure to pay this could mean imprisonment - even if it was beyound your ability to meet the Instalment Order.

If the Debtor cannot pay the debt there is no incentive to partake in society - every extra € earned is snatched. The debt settlement time limit gives an incentive.

I think the Creditor (Who has significant responsibility in the problem) should have the option to take reduced instalments for a limited time (ie Debt Settlement) OR be allowed to Register the debt against the property but without the right to force the sale. An exception to this would be where the property is a 2nd property or where there was fraud involved.

I don't think there is a need to make someone homeless so that a bank or other Creditor can have an unsecured loan paid with in a prefered time limit. The delay in repayment would contribute to the need for banks to avoid Reckless Lending.

 

[Bizzy]

My comments were in relation to Unsecured Debts. I'm not suggesting a person doesn't pay for their home - all-be-it over a longer period where necessary.