All,
It has been a slow day in work and I decided to use it to try find out exactly what the implications of having a Judgement against your name is. Two threads have been a useful source of information:
1) http://www.askaboutmoney.com/showthread.php?t=177438; and
2) http://www.askaboutmoney.com/showthread.php?t=167175
Using the illustrative example (and keeping numbers nice and round!) I thought an example might be the best way to flesh out a debate / some answers:
Example:
Johnny owns a house with a €400k mortgage outstanding, with a market value of just €200k. He has been in discussions with his bank (MARP etc) but unfortunately cannot come to a long-term sustainable agreement. He is unable to service the full interest amount, let alone any capital and will be unable to do so for the foreseeable future. Essentially, the mortgage is unsustainable and Johnny has now decided to take some action in the absence of an agreement with the bank. He can either attempt to sell the property himself and hope to get the Bank’s agreement to execute the sale to leave an unsecured amount, or hand back the keys and let the Bank deal with the sales process. Either way, he’ll have a €200k shortfall which he cannot service (for example, if the outstanding amount was kept on his 1.5% tracker over the remaining 30 year life this would be roughly €750 …I think). As a result, Johnny emigrates and thinks “Sod this, I’d like a new start elsewhere”. So, the bank is now owed €200k (assumes they have sold it for market value for ease of analysis).
So, as Brendan has summarised previously, a creditor has up to 6 years from the date of the accrual of a debt to take legal action. If the creditor gets a judgment, it lasts for 12 years. Therefore:
1) If the Bank does nothing about the shortfall, the debt will lapse after 6 years (lets be honest, a highly unlikely scenario). General consensus seems to be not to either (i) write to your creditor seeking a deal, thus acknowledging the debt; or (ii) make a payment to your creditor; as both scenarios reset the 6 year clock.
2) If the lender initiates legal action within 6 years and gets a judgment, the judgment lasts for 12 years – therefore the unpaid debt could hang over you for up to 18 years (or longer depending on a few variables). This is a more likely scenario for Johnny as €200k isn’t an insignificant amount of money.
So, now we have to deal with the fall-out for Johnny:
1) ICB
My understanding is that after 6 years this will have fallen off his official credit rating but how does this process actually work, is it an automated roll-off as your credit rating is constantly based off a rolling 6 year period? Or does the Bank have to get it removed? I would imagine they aren’t too forthcoming in assisting people in this situation to remove it. Are there other ways of getting it removed?
Once it is removed from your credit rating, is it possible to repair your credit rating? Can this process start before the 6 years are up (i.e. using a credit card frequently, having small personal loan that is paid on time etc)?
His Irish credit score wont affect any other countries credit ratings (although that wont stop an industrious lender searching Irish databases if they really want to)?
2) Judgement
Two aspects of this – financial and non-financial:
Financial – assuming you do not need to return to Ireland, 12 years after the date it is issued the statute of limitations kicks in and essentially your debt is now gone. You apply for it to be removed and you are no longer in any database (and have hopefully rebuilt some credit rating as outlined above). However, will the judgement have a financial impact on you in another country (i.e. mortgage application)?
Non-Financial – I think Brendan has summarised this part well: “it could well be a barrier to your getting a job in Ireland. It would be a direct barrier to a job as an accountant or solicitor, but many employers of other professions, might be reluctant to employ someone who is in financial difficulty”. However, if you are living in another country, what are the implications if you are working in a profession? Or even if you are not?
I have seen many posts on people looking to do one or the other of Johnny’s plan above, but I haven’t really been able to ascertain the impacts on the individuals and I am hoping the above may give some of those answers. The financial implications have been documented pretty well now but perhaps an emphasis from professionals who have worked this through with people would be beneficial to the many trying to consider their options.
My opinion is people are weighing up the choice of a PIA and everything that comes with that, to handing back the keys and trying to move on with their lives abroad and dealing with a Judgement.
Hopefully my rambling post makes sense, and happy to edit for other questions people may have.
K
It has been a slow day in work and I decided to use it to try find out exactly what the implications of having a Judgement against your name is. Two threads have been a useful source of information:
1) http://www.askaboutmoney.com/showthread.php?t=177438; and
2) http://www.askaboutmoney.com/showthread.php?t=167175
Using the illustrative example (and keeping numbers nice and round!) I thought an example might be the best way to flesh out a debate / some answers:
Example:
Johnny owns a house with a €400k mortgage outstanding, with a market value of just €200k. He has been in discussions with his bank (MARP etc) but unfortunately cannot come to a long-term sustainable agreement. He is unable to service the full interest amount, let alone any capital and will be unable to do so for the foreseeable future. Essentially, the mortgage is unsustainable and Johnny has now decided to take some action in the absence of an agreement with the bank. He can either attempt to sell the property himself and hope to get the Bank’s agreement to execute the sale to leave an unsecured amount, or hand back the keys and let the Bank deal with the sales process. Either way, he’ll have a €200k shortfall which he cannot service (for example, if the outstanding amount was kept on his 1.5% tracker over the remaining 30 year life this would be roughly €750 …I think). As a result, Johnny emigrates and thinks “Sod this, I’d like a new start elsewhere”. So, the bank is now owed €200k (assumes they have sold it for market value for ease of analysis).
So, as Brendan has summarised previously, a creditor has up to 6 years from the date of the accrual of a debt to take legal action. If the creditor gets a judgment, it lasts for 12 years. Therefore:
1) If the Bank does nothing about the shortfall, the debt will lapse after 6 years (lets be honest, a highly unlikely scenario). General consensus seems to be not to either (i) write to your creditor seeking a deal, thus acknowledging the debt; or (ii) make a payment to your creditor; as both scenarios reset the 6 year clock.
2) If the lender initiates legal action within 6 years and gets a judgment, the judgment lasts for 12 years – therefore the unpaid debt could hang over you for up to 18 years (or longer depending on a few variables). This is a more likely scenario for Johnny as €200k isn’t an insignificant amount of money.
So, now we have to deal with the fall-out for Johnny:
1) ICB
My understanding is that after 6 years this will have fallen off his official credit rating but how does this process actually work, is it an automated roll-off as your credit rating is constantly based off a rolling 6 year period? Or does the Bank have to get it removed? I would imagine they aren’t too forthcoming in assisting people in this situation to remove it. Are there other ways of getting it removed?
Once it is removed from your credit rating, is it possible to repair your credit rating? Can this process start before the 6 years are up (i.e. using a credit card frequently, having small personal loan that is paid on time etc)?
His Irish credit score wont affect any other countries credit ratings (although that wont stop an industrious lender searching Irish databases if they really want to)?
2) Judgement
Two aspects of this – financial and non-financial:
Financial – assuming you do not need to return to Ireland, 12 years after the date it is issued the statute of limitations kicks in and essentially your debt is now gone. You apply for it to be removed and you are no longer in any database (and have hopefully rebuilt some credit rating as outlined above). However, will the judgement have a financial impact on you in another country (i.e. mortgage application)?
Non-Financial – I think Brendan has summarised this part well: “it could well be a barrier to your getting a job in Ireland. It would be a direct barrier to a job as an accountant or solicitor, but many employers of other professions, might be reluctant to employ someone who is in financial difficulty”. However, if you are living in another country, what are the implications if you are working in a profession? Or even if you are not?
I have seen many posts on people looking to do one or the other of Johnny’s plan above, but I haven’t really been able to ascertain the impacts on the individuals and I am hoping the above may give some of those answers. The financial implications have been documented pretty well now but perhaps an emphasis from professionals who have worked this through with people would be beneficial to the many trying to consider their options.
My opinion is people are weighing up the choice of a PIA and everything that comes with that, to handing back the keys and trying to move on with their lives abroad and dealing with a Judgement.
Hopefully my rambling post makes sense, and happy to edit for other questions people may have.
K
