Irish borrowers seeking help to alleviate debts

By October 10, 2017Articles
Insolvency is on the rise in Ireland. With more and more people officially reporting their cases of financial disadvantage, the Insolvency Service of Ireland (ISI) hopes that the trend remains steady to encourage more people to take the first step towards remedying their situation instead of waiting too long.

Insolvency should not be mixed up with bankruptcy

“Insolvency” and “bankruptcy” are often used as interchangeable terms. However, one is in no way the synonym of the other. The meaning that each of these two words carries has been found to vary geographically, given that the legal implications that describe both of them respectively vary in the various jurisdictions strewn all around the globe. 

For example, in the United Kingdom, the term “bankruptcy” applies mostly to particulars, while “insolvency” – especially when it implies liquidation or administrative failure – is applied to companies. Across the Atlantic, the federal laws of the United States make use of the term “bankruptcy” to describe formal insolvency proceedings. And finally, in France  “banqueroute”, which is French for “bankruptcy”, applies to fraudulent cases. The word “faillite”, derived from “failure”, would be more appropriate to describe bankruptcy as it is known in most English-speaking countries.

Insolvency exists in two main forms. The first one would be “cash-flow insolvency”, while the second has been coined as “balance-sheet insolvency”.

Cash-flow insolvency

When an individual has physical assets that are worth more than his or her monetary debt, he or she is said to experience a case of cash-flow insolvency. In that particular case, the concerned individual is only deemed insolvent because he is not in possession of the necessary liquid assets that would allow him to pay for what he owes. A perfect example would be that of somebody having an expensive car, but no money to reimburse his creditor. Most of the time, cash-flow insolvency can be settled through negotiation, whereby a negotiator could agree to wait for his debtor’s assets to be sold in order to provide for reimbursement.

Balance-sheet insolvency

Balance-sheet insolvency applies to those people or companies who do not have the necessary assets, either physical or liquid, to pay their debts. In other words, they owe more than what the totality of what they own is worth. In that case, negotiation can be engaged to solve the problem without bankruptcy, given that both the debtor and the creditor recognize the loss of funds implied by their respective financial situations.

The insolvency rate soared in 2017

In Ireland, declarations of insolvency have been on a drastic rise during the past few years. Together with a report that reveals that more than 1200 cases of insolvency have been filed officially from April of 2017 to June of the same year, the ISI – or Insolvency Service of Ireland – has issued a reminder of how damaging negative financial repercussions can be to mental health. By emphasizing on the fact that more and more people are seeking debt solutions, ISI debunks the shame that encompasses insolvency in order to appeal to those who are still hesitating to get the help that they need.

“Each quarter, ISI statistics show that our solutions are getting more and more people back on track financially,” Lorcan O’Connor, the director of the ISI, said. “While it is understandable that the effects of debt on mental health can prevent people seeking the help they need, my message to anyone still experiencing unmanageable debt is to consult with one of our regulated professional advisors.”

Insolvency mainly concerns dwelling houses

Insolvency is influenced by a vast array of differing factors. As such, each is case different, which means that your very own situation could potentially fit into a category that the Ireland Service of Insolvency is already familiar with.

Analysing the applications filed since 2013 would reveal that about 44 percent of cases were connected to people’s houses, while more than 30 percent involved buy-to-let mortgages. Only 20 percent of the applications concerned loans from financial institutions.

On taking look at the applicants themselves, one would observe that 39 percent worked in the private sector, 25 percent were unemployed, 13 percent were self-employed, and 10 percent served the public sector. 

An approximate third of the cases would have been filed by people within the age bracket of 33-44, while another third concerns people being over 44, but under 54. 19 percent of applicants would be aged between 55 and 64, and 8.5 percent would situate themselves between 18 and 34. The remaining applicants would be over 65, constituting only 4.3 percent of all applications filed altogether.

Different solutions remedy different situations

People seeking help have access to three options when it comes to solving their insolvency:

  • The Debt Relief Notice (DRN) helps applicants by alleviating debts by up to €35,000. Of course, the option comes with the condition of a mandatory three-year supervision period.
  • The Debt Settlement Arrangement (DSA) deals with agreed settlements of unsecured debts. This option incurs no limits and can take up to 5 years to be processed completely.
  • The Personal Insolvency Arrangement (PIA) proposes a restructuring or settlement of secured debts of up to €3 million. The said settlement of unsecured debts can be effectuated over a period of up to six years.

The ISI hopes to reach out to more people in the future, eventually eliminating as much debt as possible through the different solutions that it proposes to Irish citizens.

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