RTE television not too long ago featured several Irish partners who were drowning with debt basically on account of having taken out large home mortgages at the height of the building bubble from 2005 to 2008. There are certainly more than 45,000 home mortgages now in arrears of three months or greater in Ireland. It is estimated that an additional 35,000 homeowners have renegotiated the repayment terms of their mortgage loans by way of rescheduling of home loan payments, changing to interest only home mortgages, prolonging the length of their mortgage or agreeing a payment holiday with their home finance loan providers.
It is evident that this is a significant issue caused or worsened when one or both partners have lost their position and therefore are living, existing, surviving or just subsisting on social welfare benefits only. The massive and continuing decline in building selling prices implies that a lot of the 80,000 plus cases already stated refer to houses in substantial negative equity. Plummeting residence prices combined with diminished home loan repayments show that in many cases the quantum of negative equity is escalating.
A lot of couples live in limbo, fearing the time when they have (to endure) their day in court and experience the possible foreclosure of their homes. For some people, depending on who their mortgage loan provider is, they may be able to take advantage of the government one year moratorium on legal action for repossession. The government is now additionally proposing to introduce a ‘deferred interest scheme’ (DIS) whereby borrowers can defer paying back about one third of the interest content of their repayments for up to five years. Not all lenders however have agreed to this. Significantly Ulster Bank and KBC Bank who are not in the Irish Government’s guarantee scheme have stated that they will not sign up to the DIS scheme. Other lenders, particularly some of the so-called ’sub-prime’ lenders have not yet clarified their stance.
In the case of repossession, according to Irish law, any deficiency remains a debt that should be paid by the unfortunate couple, whether or not they underwent formal repossession procedures in court or just handed back the keys and walked away. The total amount of the deficiency might not perhaps be known for some considerable time until the lender or building society sells the house indeed the selling expenses also become a part of the debt.
Just what exactly is a couple to try and do short of winning the lottery, getting a large inheritance or securing extremely well paid employment? One possible remedy which has not been aired very thoroughly in the Irish newspapers would be to emigrate and use the legislation of some other member nation of the European Union to write off the shortfall and also any other unsecured debt that the couple might have. OK, not everybody would like to emigrate but perhaps an out of work couple, especially when they have no dependent children or any other family ties or obligations, can at least consider the positives and negatives of such a admittedly extreme solution. It may even be that in due course they have to emigrate anyway. So, how does it work and what exactly do you have to do?
The free mobility of labour in the Eu has a number of unanticipated advantages for citizens of member states, specially if they are loaded down by debt and threatened with aggressive insolvency proceedings. In the united kingdom the legislative platform for dealing with debt is particularly attractive compared to that in other member states. The Uk gives debtors a second opportunity as well as an opportunity to rehabilitate themselves, while in certain European union member countries the predominant legal and social way of life could aim to punish the insolvent debtor.
European regulations permit the insolvency laws of one member country to apply in another subject to a number of provisos. Among the features of cross-border insolvency is that borrowers may look to start proceedings in another state of the European union that has insolvency legislation a good deal more beneficial to their particular circumstances as compared with what they might hope to achieve in their own ‘home’ legal system. This phenomenon is usually referred to as “forum shopping”. Consequently a debtor who dwells in any member state can probably submit an Individual Voluntary Arrangement (IVA) or petition for bankruptcy or indeed go after another kind of legal solution to their debt worries in the UK - provided that the uk is their “centre of main interests”. The definition of the term “centre of main interests” or COMI is of course key to the issue. Presently there is no definition of COMI other than the applicable European union Regulation states that “the centre of main interests should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties”.
The common understanding of this is that the COMI will be the state where the debtor mainly carries out their trade, profession or self-employment. Where the debtor does not trade or carry on a profession, the COMI is usually reckoned to be the nation where he or she lives. If the borrower lives in one nation and trades in another, the COMI is the country where the borrower trades. Where the person’s only connection with a nation is that they work there on a non self-employed basis (perhaps, commuting from a neighbouring nation), then the COMI will generally be in the nation in which they dwell and consequently settle payments, manage a bank account, purchase merchandise and so on. For how long would one need to dwell (and if possible work) in the united kingdom to establish one’s COMI there? It is normally deemed that six months or more is enough however, there is no conclusive answer to this.
In the case of bankruptcy proceedings, the COMI is determined at the date when the bankruptcy petition is presented and not where, historically, the relevant (e.g. borrowing) activity was carried out. In the UK a borrower may petition for his or her own bankruptcy, even though in many cases it is a creditor who does it. The total cost is about 600 and discharge normally takes place in 12 months. The place of business of creditors and the state in which debts were sustained are not material factors in determining a COMI. Oddly enough, although not relevant to personal insolvency is that in the case of a company, the COMI is the registered office, in the absence of proof to the contrary.
How about an IVA? This kind of option also is available to the hypothetical couple from Ireland but in this scenario 75% of the (presumed to be all Irish) creditors must approve the IVA proposal. They may often do so as long as they are satisfied with the debtor’s capacity to observe the terms. Remember too that an IVA in the UK is limited to England, Wales and Northern Ireland. For Scotland the broadly equivalent insolvency solution is a Trust Deed. Remember, even if lenders reject the IVA proposal, the bankruptcy remedy still continues and in the UK this is now a very benign option, even though the effects on a person’s credit rating can be serious and will last as much as six years, even though the bankruptcy itself only lasts for twelve months. Any Irish people pondering either bankruptcy in the UK or indeed an IVA or any other financial solution to their indebtedness must obtain guidance from an insolvency expert and they would also be strongly advised to get independent legal advice before going after such remedies.
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