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On the 8th May 2013 the Central Bank announced its latest approach to try and find sustainable solutions for borrowers with multiple debts.  The pilot programme will run for 3 months and will be operated by a third party service provider. Its aim is to foster co-operation between lenders in order to resolve distressed debt outside the personal insolvency regime.

It is important to note that this scheme is of no assistance whatsoever to a vast number of borrowers in that it does not apply to borrowers who have investment/buy to let properties or borrowers with business-related debts.

In reality, the scheme will only be of assistance to borrowers who have difficulty in paying the mortgage on the family home and who have other unsecured debt.  To avail of the scheme, such borrowers must be co-operating with their mortgage provider and must take steps to adjust their expenditure to established norms.

The framework is designed to produce fair, reasonable and consistent outcomes for dealing with secured and unsecured debt from multiple lenders. It establishes a series of principles to be applied in debt restructuring solutions for borrowers. The assessment of the borrower’s repayment capabilities will be ascertained from a Standard Financial Statement.

The ‘Resolution Waterfall’ sets out a series of debt affordability scenarios ranging from a) no intervention necessary to i) insolvency. Other proposed solutions along the spectrum include term extensions, interest rate reductions and mortgage restructuring.  The service provider will assess the borrower’s overall financial position and then formulate a proposal using the Framework Waterfall.

While this latest initiative by the Central Bank is to be welcomed, significantly it makes no provision for debt write-off so it will be interesting to see how many borrowers actually volunteer for this pilot scheme especially considering how many buy-to-let borrowers are excluded from the scheme.

Sinead McNamara is Managing Partner at the firm FitzGerald Solicitors and is head of the property department at FitzGerald Solicitors 6 Lapps Quay, Cork.

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