We reassure people that they are not the only ones in this situation
Mullingar based Personal Insolvency Practitioner Colm Arthur of DebtSolv tells us about his day.
I have two children, 14 and 10, and the school run is the first thing I do in the morning. Then I am in the office before half nine.
The start of my working day often begins with meetings with clients whose mortgages are in arrears and they want to find out what their options are. A meeting can go from half and hour to an hour depending on the complexity of the case.
What I do first in a meeting is reassure people that they are not the only ones in this situation and that there is help at hand. Most of these people have never had a parking ticket and have always paid their debts. They are borderline embarrassed to be in this situation.
Most of them bought houses and settled down during the boom. Money was freely available, and they might have paid €300,000 for their house. The same people, if they had married five years earlier or later, wouldn’t be in this situation.
I tell them the biggest sin they committed is that they settled down and bought a house at the wrong time. I don’t find that these people were flaithúlach. They are trying to rear their families and got caught.
The starting point is to show people their current financial situation. It may take two or three meetings but you put all of their finances up on one spread sheet. Sometimes people rob Peter to pay Paul, they might be paying their mortgage but their credit card bills are mounting.
We establish if they are insolvent, which means that if they sold all of their assets they wouldn’t be able to pay all of their debts. That’s the first test. Most people that we see who took out big mortgages in the Celtic Tiger would be insolvent.
The next test is to see if there is a way that they can be solvent within the next five years with a bit of tweaking. For example if someone has a good income and is living in a house worth €150,000 and they have a €200,000 mortgage, if they are paying €15,000 a year on their mortgage, they will become solvent in a relatively short number of years as their mortgage is going down and the value of their house is going up. However, as is the case with many of our clients, if you have a house worth €150,000, your mortgage is €280,000 and you’re on a moderate wage, no matter what, you won’t get your mortgage paid off.
Sometimes banks will offer things like a split mortgage or interest only payments. What we say to people is to come along for a meeting and see how they would compare if they were to avail of an insolvency arrangement. With an insolvency arrangement, we propose a write down of debt to match a client’s repayment capacity.
The recent change to legislation relating to personal insolvency (which removes the bank’s veto on arrangements) is ground breaking. In simple terms, if we propose an arrangement under the act and the bank object, we can appeal it to a circuit court, where the judge has the power to overrule the bank. It’s our job to ensure that the proposed arrangement is in line with the act.
We don’t deal only with mortgages. If a client is in mortgage arrears and they have unsecured debt, our arrangement proposal will also include that. If someone thinks they might be insolvent, our first consultation is free. Someone can have the benefit of knowing what will happen if they go down that route.
With insolvency you will never be asked to give up your family home, if you can pay the restructured mortgage. For example is someone has a €250,000 mortgage and the house is now worth €150,000, if we can show that they can pay the restructured mortgage before they retire, they will keep their home.
It can be tough listening to how people’s lives have been turned up side down, but when you work with them to get through it, it’s very satisfying.
Colm Arthur is authorized to carry out practice as a Personal Insolvency Practitioner by the Insolvency Service of Ireland. Authorization number PB00266.