Charlie Weston – 25th February 2013
HUGE numbers of people believe new laws to allow people to have their debts reduced are set to be abused.
The new personal insolvency system is set to come into operation by the summer. It opens up the prospect of banks coming to deals with stricken mortgage holders. Agreements would last up to five years and be rubber-stamped by judges.
If householders stick to a new reduced-payments plan the banks are set to write off large chunks of what they owe on their mortgages and any buy-to-let loans.
But a new Red C poll, seen by the Irish Independent, shows that four out of 10 people believe that the new law will encourage people who are able to meet their repayments to seek a debt-reduction deal.
Central Bank regulators are convinced that some of those in arrears in their mortgages are not paying and diverting the cash to pay other bills. This is known as strategic default – where people can pay the likes of a home loan but choose to do something else with the money.
The numbers three months or more in arrears here are three times higher than in Spain, even though that country has higher unemployment.
Now a Red C survey of a representative sample of 762 people, commissioned by 'Stubbs Gazette', has raised fears that the new insolvency process will be swamped by people trying it on, by lying about their earnings and savings. This is despite the fact that banks will have a veto over any debt deals.
Managing director of 'Stubbs Gazette', James Treacy, said: "The fact that 40pc believe the new laws will encourage people who actually are able to pay their debts to seek a debt reduction indicates that anecdotal evidence about actual and potential strategic default on loans is very much part of the public consciousness."
He said this meant the new insolvency service had a huge job to do to make consumers understand how it would work.
Some 15,000 people are expected to avail of the new debt deals. There will be three options that will allow people to settle their bills without being declared bankrupt. These deals will be agreed away from the courts, but will have to be rubber-stamped by the Circuit Court.
People who avail of the non-court debt settlement deals will have to sign a prescribed financial statement. If they fail to be honest on this form they could end up with a five-year jail term.
The Stubbs Gazette-commissioned research also found that there is unlikely to be any stigma attached to anyone having a personal insolvency deal.
Mr Treacy added: "The sheer scale of over-indebtedness in Ireland seems to have altered perceptions and softened attitudes towards individuals who found themselves deeply in debt."