This article was originally published by The Business Post.
Debt comes in many different forms, but its impact is the same on people irrespective of the amount owed, be it €10,000 or €10 million. Since 2008, debt has become one of the most pernicious social evils and the issue of troubled personal debt and especially mortgage debt has affected hundreds of thousands of citizens.
Dealing with debt is something that many have struggled with in recent years – from unsecured personal debt from credit cards and personal loans, business debt from ventures that fell to the recession, and to mortgage debt that became unsustainable as a result of loss of income.
However, there are strategies that can help deal with debt and solutions do exist. I have been involved in helping those with unsustainable debt since 2010 and in 2012 established the Irish Mortgage Holders Organisation to provide professional services to those in debt.
Here, I will outline the ten vital steps to deal with debt based on my experience of dealing with creditors.
In recent months, some banks have increased their requests to hand back the keys and make yourself homeless – and still owe them the debt.
If a bank requests you to surrender your home and makes no effort to offer a debt write-off, then decline and seek advice immediately.
1. Do your sums
Establish exactly how much you owe to the different creditors, who those creditors are, whether any of the debts have been sold, and what you are paying them at the moment. Also, establish what interest rates are being applied to all your loans.
Next, calculate what the value of your assets are. This is vital to establish if your assets actually outweigh your liabilities. Property prices have been moving considerably in recent years, so it is important to be accurate.
You also need to include other items such as investment properties, land, pensions or other investments that you might have – even if you haven’t looked at them in several years, they are important.
Finally, establish how much your household income is each month – this is key to establish how much you have available to pay creditors each month.
2. Find out how much you can spend
The Insolvency Service of Ireland has set out what it considers to be reasonable living expenses (RLEs). The figures are available at backontrack.ie, and explain what different family sizes should be living on each month.
You also need to make sure that you take into account payments towards a mortgage or rent along with any health and medical expenses, childcare costs or any other special circumstances that might arise.
Some banks allow for up to 20 per cent higher expenditure than these RLEs and an experienced debt adviser will know what is allowable by each bank.
3. Find out what your options are
Find out what it is that you can do. The best place to start is to get expert professional advice – either from a Personal Insolvency Practitioner (PIP) regulated by the Insolvency Service of Ireland, a debt management professional regulated by the Central Bank of Ireland or a debt charity that is regulated by the Charities Regulatory Authority.
Most professionals don’t charge for an initial meeting, and a new government scheme called Abhaile allows for you to meet with a PIP for free.
There is now no excuse not to access professional help. It is never too late to get assistance.
The Abhaile scheme also allows for legal help if you are in court facing repossession of your family home.
Your options will fall into one of three categories: 1) informal direct negotiations with your lender; 2) a Personal Insolvency Arrangement, which is a formal arrangement, protected by the courts and arranged by a PIP; and 3) the option of last resort – bankruptcy.
Dealing with debt is daunting, unpleasant and sometimes scary. However, you must engage with it, engage with the process, engage with the creditors, and engage with the professionals who are there to help you.
Engagement isn’t simply writing letters and occasionally answering calls. It involves knowing what you are dealing with, finding out the rules of engagement in whatever process you choose and then committing to and executing what is required.
Help is available and should be taken, as many find engaging with creditors very difficult and stressful.
5. Find out if you are at risk of vultures coming on the scene
For many people, there is a risk that their loan will be sold to a vulture fund. Thousands of them have already been sold.
Vultures mean a couple of things. Firstly, if your loan is sold it probably means a delay in anything happening while the vultures set up operations and get through the files.
Don’t be lulled into a false sense of security – just because you haven’t heard from the vulture fund (or more likely their servicing agency) in a few weeks or even months doesn’t mean that they and the debt have gone away. They will be back.
It also means that the restructuring options that may have been open to you with your original lender may not be available with the vulture fund. This is very bad news if you are looking to restructure a loan. It is vital that you engage now ahead of any risk of a loan being sold to a vulture fund.
On the positive side, if you are looking to dispose of an asset and secure a debt write down on the residual debt, then the vulture will make a decision on these ten times faster than any bank will. This is undoubtedly a positive – but only if you can manage without the asset that, in some cases, is the family home.
6. Compare the different options to see which one is best.
Compare the pros and cons of each option that is open to you. Maybe informal negotiations will be quicker, but will they deal with all your debt? Is bankruptcy the only option or could you try an insolvency arrangement. You need to compare and make sure you are doing the right thing.
A professional expert adviser will help you with this and should explain to you the different options and why they may or may not work.
7. Act now
Don’t leave your head in the sand – the problem won’t go away, unfortunately. You need to act immediately. A professional adviser is your first port of call. If you are struggling with debt, contact a professional today.
8. Mind your head
Mental health is important. Debt is a stressful thing to deal with. If you are feeling under pressure or anxious, talk to your GP or contact the Samaritans. While dealing with debt is important, life goes on. If today is bad, tomorrow may be better and minding yourself and those important to you is the most important thing.
Many will have been under immense pressure trying to tackle debt for the past seven or eight years. Those who have tackled it will tell you that the relief is immense.
9. Avoid headbangers
When you decide what to do, make sure to stick to the plan. There are lots of snake oil salesmen out there who will promise you all sorts of magical solutions to wipe out your debt. Unfortunately, there is no such thing as a free house, and be very wary of anybody who comes telling you about legal remedies that just don’t stack up.
If anybody promises you something, ask them for proof of it working elsewhere. Ask for a court ruling or another official document. Most importantly, if you are promised something and provided with paperwork get a second opinion, preferably from a qualified legal professional.
As a general rule of thumb, if it sounds too good to be true, it probably is.
10. Take a break
The banks close at the weekend and in the evenings. The postman only comes once a day. When Friday evening comes, forget about banks, debt and insolvency. Try to relax with your family and friends, ready to push on again next week. Please engage with a trusted third party as soon as possible, and work towards giving you and your family a fresh start.
David Hall is chief executive of the Irish Mortgage Holders Organisation