Banks that "irrationally" reject realistic insolvency applications made by distressed borrowers will be named and shamed by the Insolvency Service of Ireland (ISI) from early next year as it seeks to get back on track after a very slow first year in operation.
All told 28 per cent of insolvency applications brought to creditors are being rejected as the main lenders exercise a veto The director of the ISI Lorcan O’Connor said he was disappointed that the bank’s rejection rate was so high and said comparable figures in the UK suggested that banks should be agreeing to deals in more than 95 per cent of cases.
However he denied that insolvency legislation which gave lenders who owned the bulk of a person’s debt an effective veto on any arrangement was flawed.
“I don’t think we need a stick to beat the banks. I think they should see that making deals are in their interest. I don’t see why the rejection rates should be so high other than it is an immature market and creditors have yet to accept that the various insolvency routes are a better option to bankruptcy,” he said.
From the beginning of next year, the ISI will begin collecting more details on which banks have rejected applications made on behalf of distressed borrowers by personal insolvency practitioners (PIPs) and will publish details bank refusals from next March.
It also says it will contribute €750 to the cost of PIPs if banks reject applications “irrationally “.
According to the ISI’s latest figures 301 people have been declared bankrupt under the new insolvency legislation while a slightly higher number have taken one of the alternate routes open to distressed borrowers including debt relief notices and personal insolvency arrangements.
The director of the ISI Lorcan O’Connor conceded that the new figures were “just a drop in the ocean” and he said that the numbers using the ISI in its first year were expected to be “far higher”.
He said that while the agency did not have estimate as to how many people would use the service when it started accepting insolvency applications last summer but he said that based on UK figures, in excess of 6.000 people should have used either debt relief notices; debt settlement arrangements or personal insolvency arrangements over a period of 12 months.
“During the summer we tried to establish what the barriers were and then we tried to remove any barriers that were under our control,” he said.
He said the ISI had identified a lack of awareness of the range of solutions available as one of the main factors as to why people had not been availing of the insolvency solutions while the perceived cost of insolvency was another issue raised during research focus groups, with many people thinking it would cost thousands of euro to avail of them.
The ISI has suspended all application fees until the end of 2015. While the majority of personal insolvency practitioners (PIPs) charge a consultation fee, in almost all cases this is in the region of €100 to €300, and some may not charge an initial fee at all.
The ISI believe that many people struggling with debt are still living below what is considered a reasonable living standard. Its latest research found many people are scrimping on food and prioritising bills and too embarrassed to seek help – or don’t actually see themselves as insolvent.
“They knew they were struggling, yet the last thing they wanted to do was to turn their back on their debts or seek help,” Mr O’Connor said. “We want these people to see that there is help available, that there’s no embarrassment in seeking it and no shame in taking it.” He said the key message was “very simple – if you’re living with the distress of debt, you’re not alone. There is help available and it’s time to talk to ISI.”
ISI Q3 figures
180 Protective Certs issued
352 applications for debt relief notices; debt Settlement arrangements and personal insolvency arrangements
131 arrangements approved
137 bankruptcies
33% number of Personal Insolvency Arrangements rejected by banks
€519m the total debt involved in the approximately 1,200 cases currently with the ISI
