RTE television lately featured several Irish partners who were drowning with debt basically because of having taken out vast mortgage loans at the height of the building bubble from 2005 to 2008. There are certainly over 45,000 home mortgages now in arrears of three months or greater in Ireland. Around an additional 35,000 homeowners have renegotiated the repayment terms of their home loans through rescheduling of home loan payments, changing to interest only mortgage loans, prolonging the timeframe of their home finance loan or agreeing a payment holiday with their mortgage 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.
So what is a couple to do short of winning the lottery, receiving a substantial inheritance or obtaining very well paid work? A practicable solution which has not been aired very extensively by the Irish press is to emigrate and use the laws and regulations of another member country of the European Union to write off the deficiency in addition to any other unsecured debt that the couple may have. OK, not everybody wants to emigrate but perhaps an unemployed couple, especially if they have no dependent children or other family ties or responsibilities, can at any rate go through the pros and cons of such a unquestionably drastic remedy. It may even be that in due course they would need to emigrate in any event. So, how does it work and what do you have to do?
The free mobility of labour in the Eu has many unanticipated advantages for citizens of member states, in particular when they are overburdened by debt and threatened with hostile insolvency proceedings. In the UK the legislative framework for dealing with debt is most definitely appealing compared to that in other member states. The Uk gives borrowers a second chance and an possiblity to rehabilitate themselves, whilst in certain Eu member countries the predominant legal and social way of life could very well aim to penalize the insolvent borrower.
European laws permit the insolvency laws of one member country to apply in any other subject to certain provisos. One of the features of cross-border insolvency is that debtors can aim to start proceedings in another nation of the European union that has insolvency laws a good deal more favourable for their particular circumstances compared to what they might hope to get in their own ‘home’ jurisdiction. This trend is sometimes referred to as “forum shopping”. This means that a debtor who dwells in any member country can probably submit an Individual Voluntary Arrangement (IVA) or perhaps petition for bankruptcy or indeed go after some other type of legal solution to their debt problems in the united kingdom – so long as the uk is their “centre of main interests”. The definition of the expression “centre of main interests” or COMI is of course key to the issue. At this time there is no definition of COMI apart from the relevant Eu Regulation states that “the centre of main interests should correspond to the place where the borrower performs the administration of his interests on a regular basis and is therefore ascertainable by third parties”.
The normal understanding of this is that the COMI will be the nation in which the borrower 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 country where he or she resides. If the debtor lives in one nation and trades in another, the COMI is the country where the debtor trades. Where the person’s only connection with a state is that they work there on a non self-employed basis (perhaps, commuting from a neighbouring country), then the COMI will generally be in the nation in which they reside and consequently pay bills, manage a bank account, purchase merchandise and so on. For how long would one have to live (and if possible work) in the united kingdom to establish one’s COMI there? It is usually deemed that six months or more is enough but 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.