A couple have had almost €220,000 mortgage debt written off and get to keep their family home in Co Louth under a personal insolvency arrangement (PIA) approved by the Circuit Court.
Pepper Finance, the primary creditor of Diane and Shane O’Brien with mortgage debt of €604,000, objected to the PIA as unfair for reasons including that it provided for the largest debt write-down (to the market value of the family home) permissible under the Personal Insolvency Acts.
Pepper proposed an alternative PIA while Allied Irish Bank, the only other creditor, owed a €1,918 credit card debt by Diane O’Brien, voted in favour of the couple’s PIA.
Judge Mary O’Malley Costello found the proposal advanced by the couple’s personal insolvency practitioner, Eugene McDarby, represented by barrister Keith Farry, instructed by Anthony Joyce & Co Solicitors was “more reasonable, proportionate and sustainable” than Pepper’s counteroffer.
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Her decision stressed the importance of enabling debtors to resolve their insolvency while allowing creditors to recover debts to the extent of the reasonable means of debtors.
The core dispute between the O’Briens and Pepper was over the proposal to write down their €604,000 mortgage balance to the €385,000 value of their home at Smarmore, Ardee, Co Louth, involving about €218,474 debt being written off and treated as unsecured debt.
Their proposed two-year PIA involves restructuring of the couple’s mortgage loan. It provides that the mortgage term is extended to 240 months, the €377,000 arrears are capitalised and the debt is written down to the value of the property.
A 3 per cent interest rate will apply on monthly repayments of €962 for the 24-month term of the PIA, after which a 4 per cent variable rate applies from months 25 to 240 with a forecast €2,503 estimated capital and interest monthly repayments over that period.
Pepper’s alternative one-year PIA proposed extending the mortgage term to 252 months with a debt write down to €450,000 would, the judge noted, result in an extra €65,000 for Pepper. Interest over the 12 months of the PIA would be fixed at 3 per cent, meaning interest-only monthly repayments of €1,075 for that period, with the prevailing variable rate to apply after that, involving estimated monthly repayments of between €2,385 and €2,650 monthly.
In her recent judgment, Judge O’Malley Costello noted Mr O’Brien is a 51-year-old maintenance worker and Ms O’Brien, aged 49, is working as a scheduler for a limited company. They have one dependent child, aged 18 and still in education. The household income is about €5,672 monthly and their set costs are about €2,358, with special circumstances costs, including college costs, car expenses and insurance of €687 monthly.
It is clear, during the course of the PIA, the full means of the debtors will be brought to bear on the debts due to Pepper, she said.
The evidence presented justification for the write-down of the loan to the market value of their home as that was necessary to ensure they could meet their proposed repayments and can service the loan in the long term without default, she said.
After the PIA, between months 25 to 60, there would be a surplus of €142, she noted. That was within acceptable parameters and, in most cases, would be necessary to deal with the vicissitudes of life, never mind possible interest rates, she said.
Unless interest rates increase, their PIA would mean a possible surplus of €700 monthly, while Pepper’s proposal meant a €545 surplus after their child finishes college and they continued to work, she said. The €700 surplus was not unacceptable.
Based on those and other findings, it was not prejudicial to Pepper to approve the PIA, the judge concluded.
