Low Uptake Of Debt Settlement Arrangements So Far

8th April 2014

Figures recently produced by the ISI (Insolvency Service of Ireland) confirm that more than 500 personal insolvency applications have been received. The measurement period is the first three months of 2014.

It would seem that this number is trending upwards as it’s understand that approximately fifty applications are now being received weekly.  This will be a source of some encouragement to legislators, the management of the ISI and also to personal insolvency practitioners.

Despite this promising sign, so far a very small number of personal insolvency debt solutions have progressed substantially towards completion. The fact that just 70 protective certificates have been issued suggests that PIPs are not being formally appointed to act on a regular basis. Such certificates provide cover for a debtor while their PIP attempts to do a debt deal, such as a debt settlement arrangement, for them.

Just seven debt settlement arrangements have been formally approved. This number reduces to four for personal insolvency arrangements that include secured debts. Debt relief notices have been used more frequently, though the total for those stands only at a very modest level of forty four.

The data on the pending formal debt deals is intriguing. The level of expected debt write-off on the proposed DSA cases is nearly eighty per cent for example (assuming approval). Why is this figure so high? Quite simply that’s because the debtor isn’t in a position to pay any more over the standard term of this type of debt deal.

Why have there been so few cases formally approved thus far? There’s scepticism as to whether banks will be willing to accept such deals. The public are still largely unaware of how such debt deals work (or whether they work at all). Many people aren’t in a position to apply for a debt settlement arrangement because they lack the capacity to make a regular repayment towards their debts at all. This also helps to explain why bankruptcy figures are starting to rise upwards quickly.

We’re still in the early stages of the development of personal insolvency in Ireland. The lack of progress thus far is a concern, but it should not necessarily be seen as evidence that the system is not fit for purpose. As the public, debt professionals and banks start to enjoy a greater appreciation of the benefits of a formal debt deal it’s likely that the numbers will grow significantly. This may be a factor of time as much as anything else.

There’s still a stand-off between lenders and their borrowers that have become trapped in debt. This is not in the long–term best interests of the Irish economy, banks or individuals. Formal debt deals (such as personal insolvency arrangements and debt settlement arrangements) will play a key role in tackling that deadlock for years to come irrespective of the slow progress made thus far.