Overindebted property investors – a fix without insolvency using Section 69

There are a lot of property investors who will see the ramp up of repossessions or insolvency of their current situation result in large losses occurring.

We hear from many clients that they plan to opt for personal insolvency, but in many instances this doesn’t need to be the case. If a person has five properties and one is a family home they could opt to sell the investment properties and have any losses accrued into a general shortfall where the settlement repayment plan is a compromised effort.

Compromised settlements will be a stock solution for a huge number of investors, but this doesn’t demand insolvency. In fact, Personal Insolvency (given that property ownership is required to opt for it) may not be anywhere near as popular as predicted because sales resulting in losses will mean the debt is unsecured.

There is still the family home, but banks have given an undertaking to help cut deals for family homes once unsecured debtors are taken care of first, that is what doing a Debt Settlement Arrangement is for, a Section 69 DSA offers some protection to the family home (see below for actual code).

The way to orchestrate this is as follows:

1) Seek a compromised settlement with the banks, a ‘sale for loss’ or ‘short sale’, where the property is liquidated and the shortfall has some agreed upon plan.

2) If the bank refuse you can try to bring a cause using the Palk precedent as a grounds for enforcing the ability to sell for a loss.

3) Once all shortfalls are realised you are left with the family home and an unsecured debt. DSA’s have no upper limit so you can then go into a DSA plan for whatever is left and have the family home protected in that process.

4) The DSA will last the usual amount of time, but the family home must be accommodated in that process, this removes some of the veto issues that come with PIA agreements and also gives the borrower leverage because they will be dealing with unsecured debt first as per the banks own wishes.

You are also left with the PIA option should you need it again in the future.

Insolvency legislation section below:

Section 69: In formulating a proposal for a Debt Settlement Arrangement a personal insolvency practitioner shall, insofar as reasonably practicable, and having regard to the matters referred to in subsection (2), formulate the proposal on terms that will not require the debtor to

a) dispose of an interest in, or

b) cease to occupy, all or a part of his or her principal private residence and the personal insolvency practitioner shall consider any appropriate alternatives.

(2) The matters referred to in subsection (1) are

a) the costs likely to be incurred by the debtor by remaining in occupation of his or her principal private residence (including rent, mortgage loan repayments, insurance payments, owners’ management company service charges and contributions, taxes or other charges relating to ownership or occupation of the property imposed by or under statute, and necessary maintenance in respect of the principal private residence),

b) the debtor’s income and other financial circumstances as disclosed in the Prescribed Financial Statement,

c) the ability of other persons residing with the debtor in the principal private residence to contribute to the costs referred to in paragraph (a), and

d) the reasonable living accommodation needs of the debtor and his or her dependants and having regard to those needs the cost of alternative accommodation (including the costs which would necessarily be incurred in obtaining such accommodation).

Comments

  1. A TV3 Viewer

    Hi Karl,
    I saw you on TV3 this morning talking about debt which led me to this post, i also mailed TV3 after the program but have had no reply.
    You may well be correct regarding using section 69 for debt settlement but that relies on the banks engaging with their customers, in reality this doesnt always happen.
    You said on TV3 unsecured loans are really the same as a credit card debt implying they are of no consequence, this is so wrong and incorrect.
    There is no such thing as an unsecured loan in Ireland, as if you own a home the bank can and will take you to court for it, obtain judgments against you and then have these judgments placed on your house as judgement mortgages for which they will get 8% interest per annum.
    Their solicitors who have obtained this judgment will then write to you stating what the banks options are, from sending the sheriff to your home to sending you to prison.
    So please be aware that so far as the banks and the courts are concerned unsecured and secured loans are essentially the same thing.
    And yes this is our reality, and in this whole process we have had no help and no protection.
    Best regards
    Name Supplied

  2. Hi TV3 viewer,

    Unsecured loans have no security, for that reason they are exactly like a credit card debt albeit with a different formation. There is unsecured lending in Ireland, the right of appealing to the courts for settlement doesn’t change the status of the loan.

    As for the courts process, that is a separate matter and is about outcomes rather than the nature of the debt. If you need to talk call our general number and ask for me, I’d be interested to hear more about your experience.

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