A Bill was introduced in January 2013 to allow an arrangement to be agreed which would restructure the terms and/or the payment schedule of a secured debt in respect of a person’s principal private residence. Being a private member’s bill, it may be that it will not be enacted into law but the government may choose to introduce their own bill along similar lines. The chosen arrangement is called a Mortgage Restructuring Arrangement and the bill has a lot to commend it.
While the bill, entitled Mortgage Restructuring Arrangement Bill 2013, does not seek to force creditors to agree to mortgage write-downs or write-offs, it does seek to compel creditors to engage with the process, and thus it appears to have more teeth than the provisions contained in the Personal Insolvency Act 2012. A debtor may only enter into an Mortgage Restructuring Arrangement once.
Eligibility criteria for the debtor are quite similar to those in the Personal Insolvency Act 2012. He or she must be insolvent and the debt must be secured on the debtor’s principal private residence, which must be the debtor’s sole property. The debtor must use the services of a Personal Insolvency Practitioner or PIP in good faith and provide a Prescribed Financial Statement or PFS, disclosing completely and accurately his or her assets, liabilities, income and expenditure. The debtor must make a sworn declaration that no alternative acceptable arrangement could be reached with the creditor. If the debtor is a bankrupt or has availed of any of the new insolvency procedures of the Personal Insolvency Act 2012, he or she is ineligible for an Mortgage Restructuring Arrangement.
Not being domiciled in Ireland or being resident here within one year of the Mortgage Restructuring Arrangement application would preclude the debtor from applying for an Mortgage Restructuring Arrangement as would entering into any transactions at an undervalue (TAUs) or preferential transactions (PTs) in the two years preceding the application.
The PIP takes into account the debtor’s current, contingent and prospective liabilities, and his or her current and prospective assets (certain assets are excluded). Documentation is then prepared affirming eligibility, declaring the failure to reach agreement with the secured creditor, setting out the debtor’s debts and creditors and including a completed and up to date PFS.
The PIP communicates with the secured creditor providing essential documentation, advising of the prospective Mortgage Restructuring Arrangement application, inviting and considering creditor submissions on the matter and arranging a joint meeting(s) between the creditor and debtor. Whether or not the creditor engages in the process the PIP may propose an Mortgage Restructuring Arrangement and convene another joint meeting for the purpose of seeking agreement between the creditor and debtor, with or without variations, which either party may propose.
The Mortgage Restructuring Arrangement will then be either established or deemed to have been rejected and the PIP advises the debtor of other options available under the Personal Insolvency Act 2012.
Once the Mortgage Restructuring Arrangement is in place and provided the debtor adheres to the agreement reached, creditors are constrained from commencing, continuing or availing of many legal enforcement processes and must desist from contact with the debtor in regard to payment of the debt. They may continue to pursue any guarantors of the debt.
The most attractive feature of the Mortgage Restructuring Arrangement from the debtor’s perspective is that repayments are only in respect of 110% of the market value of the principal private residence and any excess of the secured debt over that figure is reclassified as unsecured debt – in other words this provides for a release of at least a part of the negative equity. Disposal of the principal private residence is not required and the agreed payments to the secured creditor must leave the debtor with sufficient funds to maintain a reasonable standard of living.
The bill also deals with rights of appeal to the courts in regard to decisions made by the PIP and also allows for the Mortgage Restructuring Arrangement process to continue by court order when one or more joint debtors refuses to participate in it.
It remains to be seen if the government supports this private member’s bill or introduces one of its own or simply allows the new procedures in the Personal Insolvency Act 2012 alone to address the issues of negative equity.
Written by Paddy Byrne
19 / 03 / 2013