Can You Include Credit Union Loans In Your DSA?

27th January 2014

It has always been envisaged that loans taken from credit unions could be included in a Debt Settlement Arrangement. These loans were believed to be unsecured, like a regular bank loan, and therefore subject to the usual rules of the personal insolvency system.

It has now emerged that some credit union loans might in fact technically be “secured” which would render them outside of the scope of a DSA. Such DSA debt deals are only intended to incorporate unsecured credit.

Reports suggest that credit unions required those taking out larger loans, sums of €20,000 or more, to take out a life policy connected to the loan. Personal insolvency practitioners report that this categorises the debt as being “secured” and therefore not includable in a Debt Settlement Arrangement.

Such loans could still be included in a Personal Insolvency Arrangement (PIA) instead. A PIA can incorporate secured debts (like mortgages) as well as unsecured debts.

Most people that have a credit union loan that they’re struggling to repay will be unaffected by this news. The average loan from a credit union is believed to be around €8,000, well below the €20,000 threshold where life policies were imposed on borrowers.

It’s believed that around 20% of credit union loans are currently in arrears. Even those loans that have been kept up-to-date (in terms of repayment) thus far might remain vulnerable to non-payment. Anecdotal evidence suggests some borrowers prioritise the repayment of their debts from credit unions over and above those of other creditors. Such prioritisation would come to an end in the event of personal insolvency in the form of a DSA or PIA.

The credit union sector is therefore currently extremely exposed. The high levels of debt problems being experienced by many Irish residents, the high levels of arrears on existing lending and the introduction of a new personal insolvency framework exposes the sector to huge debt write-offs in the future.

At the moment so few Debt Settlement Arrangements and Personal Insolvency Arrangements have been set-up that there is little insight into just how many users will be seeking to address credit union borrowing alongside their other debts. It appears likely however that the numbers will be significant and that the credit union sector will need to continue to consolidate into larger entities in order to be able to weather the coming financial storm.

If you’re considering starting a DSA or PIA why not contact our advice team? The experienced advisers will offer you their insight into the options that you have to get back on a level financial footing in the future.