The Question for Irish Mortgage Holders.

RTE television lately showcased a few Irish wives and husbands who seemed to be drowning with debt mostly brought on by having obtained substantial home mortgages at the height of the property bubble from 2005 to 2008. There are certainly around 45,000 mortgage loans at this time in arrears of three months or greater in Ireland. Around a further 35,000 property owners have renegotiated the payment terms of their home loans through rescheduling of home loan repayments, switching over to interest only home mortgages, increasing the term of their home loan or agreeing a payment break with their mortgage loan providers.

It is apparent that this is a significant challenge created or worsened when one or both partners have lost their position and so are living, existing, surviving or just subsisting on social welfare benefits only. The massive and continuing drop in building values means that many the 80,000 plus cases mentioned above refer to properties in considerable negative equity. Falling home values in combination with reduced home loan repayments mean that in many instances the quantum of negative equity continues to grow.

Many couples are living in limbo, dreading the time when they have (to suffer) their day in court and face the likely repossession of their homes. For some people, depending on who their mortgage loan provider is, they may be able to avail of the government one year moratorium on legal action for foreclosure. The government is now additionally proposing to bring in a ‘deferred interest scheme’ (DIS) whereby borrowers can defer repaying about one third of the interest content of their payments for up to five years. Not all lenders however have agreed to this. Notably Ulster Bank and KBC Bank who are not in the Irish Government’s guarantee scheme have stated that they will not join 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 continues as a debt that must be satisfied by the unfortunate couple, whether or not they went through official repossession procedures in court or simply handed back the property keys and walked away. The total amount of the shortfall will not quite possibly be known for some considerable time until the bank or building society sells the property not to mention that the selling expenses also end up being a portion of the debt.

So what is a couple to attempt short of winning the lottery, receiving a huge inheritance or securing very well paid employment? One simple plan that has not been aired very extensively in the Irish press is to emigrate and use the laws and regulations of another member nation of the European Union to write off the deficiency together with any other unsecured debt that the couple has. OK, not everybody would like to emigrate but perhaps an out of work couple, particularly when they have no dependent children or other family ties or obligations, can at least go through the pros and cons of this unquestionably major remedy. It may even be that in due course they have to emigrate anyway. So, how does it work and what do you have to do?

The free movement of labour in the European union has quite a few unanticipated benefits for citizens of member states, in particular when they are overburdened by debt and threatened with aggressive insolvency proceedings. Within the uk the legislative framework for dealing with debt is most definitely attractive compared to that in other member states. The Uk offers debtors a second chance as well as an opportunity to rehabilitate themselves, while in a few Eu member countries the predominant legislative and social way of life may look to penalize the insolvent debtor.

European regulations permit the insolvency legislation of one member state to apply in another subject to certain provisos. Among the features of cross-border insolvency is that debtors can look to start up proceedings in another nation of the European union which has insolvency laws considerably more beneficial to their individual needs as compared to what they might hope to attain in their own ‘home’ legal system. This trend is occasionally 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 pursue some other 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 matter. At this time there is no definition of COMI except that 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 normal interpretation 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 regarded as being the where he or she lives. If the borrower is located in one state and trades in another, the COMI is the nation where the debtor trades. Where the person’s only connection with a country is that they work there on a non self-employed basis (perhaps, commuting from a neighbouring state), then the COMI will generally be in the country in which they are living and consequently settle payments, manage a bank account, purchase goods and so on. For how long would one have to dwell (and if possible work) in the UK to establish one’s COMI there? It is typically deemed that six months or more is enough however, there is no conclusive answer to this.

In the event of bankruptcy proceedings, the COMI is established at the date when the bankruptcy petition is presented and not where, historically, the relevant (e.g. borrowing) activity was carried out. In the united kingdom 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 one year. The place of business of lenders and the state wherein debts were sustained are not material factors in determining a COMI. Interestingly, although not relevant to personal insolvency is the fact that in the case of a company, the COMI is the registered office, in the absence of proof to the contrary.

What about an IVA? This particular option is also accessible to the hypothetical couple from Ireland but in this situation 75% of the (assumed to be all Irish) lenders must accept the IVA proposal. They will often do this as long as they are satisfied with the debtor’s capacity to observe the terms. Keep in mind that an IVA in the UK is restricted to England, Wales and Northern Ireland. For Scotland the broadly similar insolvency solution is a Trust Deed. Remember, even if creditors reject the IVA proposal, the bankruptcy solution still continues and in the UK this is now a very benign alternative, although the consequences on a person’s credit rating can be significant and will last as much as six years, even though the bankruptcy itself only lasts for twelve months. Any Irish people thinking of either bankruptcy in the UK or indeed an IVA or any other financial solution to their indebtedness should receive advice from an insolvency professional and they would also be well advised to obtain independent legal advice before pursuing such solutions.