Case study Lot of debt - are we insolvent or bankrupt?

Marianne

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Posting this for a family member - grateful for any opinions.


Personal and income details
Income self: €40,000 self-employed caring profession - part-time
Income history: Steady: good demand for service
Income partner/spouse: No income for around three years. Forced to close a professional practice due to mental health issues. Now starting on the long road to re-training at age 46.
Income history:
number of children: 3, aged 12 down

Home loan
Lender: KBC
Amount outstanding: 218,000
Value of home: 170,000
Interest rate: tracker: not sure of rate
Monthly repayment: €350 interest-only
Amount in arrears: Nil

Summary of discussions and agreements with the bank: in Marp since 2012 . Have been on interest only since then.

Investment property (1)
Lender: Bank of Scotland
Amount outstanding: 158,000
Value of home: 75,000
Interest rate: 2.5% (tracker)
Monthly repayment : €330
Amount in arrears : Nil
Monthly rent received : Up to recently: €550; currently NIL

Investment property (2)
Lender: Bank of Scotland
Amount outstanding: 152,000
Value of home: 75,000
Interest rate: 2.5% (tracker)
Monthly repayment : €320
Amount in arrears : Nil
Monthly rent received : Up to recently: €530; currently NIL

Both houses would require money to redecorate before they can be rented again.

Other loans and creditors
Overdraft: Business overdraft €120,000 Ulster Bank - a hangover from husband's former business

Other savings and investments
Nil

How important is retaining the family home to you?

I would like to keep it, but will get rid of it if it means I can get rid of the mortgage associated with it.

Other details:
Husband out of work due to mental health issues. His business had to close down for the same reason, leaving around €120,000 in business debt (usecured). He may or may not work again - not clear at the moment.

Until recently, both investment properties were rented out and generating an income over and above the interest-only repayments. Tenants have now moved on. Have written to Bank of Scotland to advise that repayments cannot be made until new tenants start paying rent. Problem - houses would need money on a bit of redecorating and repairs before they would be let again. Don't have the money to do that.

Wife's income is about enough to cover household expenses for five people including mortgage on family home. Very little excess.

Ulster Bank now starting to chase their €120,000 business debt.

Would be happy to sell investment properties if Bank of Scotland would write off the negative equity. If Bank of Scotland refuse to write off the negative equity but allow the sales, couple would then have €150,000+ unsecured debt to Bank of Scotland + €120,000 to Ulster Bank.

Would bankruptcy or personal insolvency be an option? What would it entail?

Thanks for any and all opinions.
 
A few things are unclear.

1) Business debt -one assumes business was as sole trader rather than as a company ? -i.e. he is personally responsible .

If it were not for the this debt I'd say the mortgages on all three houses seem -considering they're all trackers - quite payable. Except the two houses are empty,which leads to second question....

2) You say your husband is not working -yet the houses need decorating and because of this remain empty. Are expensive and complicated repairs needed,or is a question of a few weeks elbow grease and a few euros worth of paint and minor materials ?

If these two points (business debt and why is husband not decorating)were clearer it would be easier to advise
 
|shortfall|Mortgage|value
Home|48,000|218,00|170,00
Investment 1|83,000|158,000|75,000
Investment 2 |77,000|152,000|75,000
Overdraft|120,000
Total|328,000
Gross income: €40,000

Let's see what a Personal Insolvency Arrangement which is the part of the PIA aimed at people with secured debt, might look like

You go to a Personal Insolvency Practitioner who will put together a plan to your creditors along the following lines

1) Reduce the home loan to €170,000 @ 2% over 30 years = €600 per month.
2) Sell both investment properties and give the proceeds to Bank of Scotland

This will leave you with the following unsecured loans

|shortfall
Home shortfall|48,000
Investment 1|83,000
Investment 2 |77,000
Overdraft|120,000
Total|328,000
After allowing yourselves a reasonable standard of living, you would pay what you can towards these unsecured debts over the next 6 years. After that, the debt would be written off.

You get to stay in your home.
You get some debt forgiveness on your home.
You pay off the home loan, so you could end up owning it mortgage free in 30 years.

UB and KBC will agree to this as they are not going to get anything anyway.

KBC would probably veto it as it's a cheap tracker.
They would make the following counter offer.
Sell the investments and write off the unsecured loans.
Split the home loan into €170,000 active loan and €48,000 deferred at 1% interest.

Alternatively, and they might insist on this, sell the family home now and pay off the mortgage.

If they reject this, let's look at a Debt Settlement Arrangement
A Debt Settlement Arrangement is for unsecured debt. The problem is that you have secured debt.

Sell the investment properties for whatever you get.
Sell the family home for whatever you get.

Enter into a DSA as follows

After allowing yourselves a reasonable standard of living, you would pay what you can towards these unsecured debts over the next 5 years. After that, the debt would be written off.

5 is the maximum number of years. But this makes no sense to me, as you can both go bankrupt and be debt-free in three years.
So I would propose a DSA with immediate write-off of all unsecured debt.

|shortfall|
Home shortfall|48,000|15%
Investment 1|83,000|27%
Investment 2 |77,000|24%
Overdraft|120,000|37%
Total|328,000

If 35% of your creditors object to this arrangement, then it won't go through.
So Ulster Bank could veto it on its own. Bank of Scotland could veto it on its own.

I don't see why either of them would bother vetoing it. I think that they will get the DSA proposal from the PIP and just ignore it or else vote in favour of it.
 
This is how I would approach it.

Start discussions with KBC and ask for a split mortgage. I just don't know if they will agree to split a mortgage on a cheap tracker. They may split it but charge the SVR on the active part, which more or less defeats the purpose of it.

Start talking to BoS. Tell them you will put the houses on the market immediately as you are bankrupt. But you will manage them in the meantime and sell them at the best possible price. As they are leaving the country, they will agree to this. You might ask them up-front to agree not to block and DSA. I doubt if they will agree to this in writing, but I doubt if they will actually vote.

Write to UB and tell them what you are proposing. There is no money available and you will be either applying for a PIA or DSA or Bankruptcy. But they should not be wasting their money pursuing you as you have nothing to pay them and you are unlikely to be in a position to pay them.
 
A few things are unclear.

1) Business debt -one assumes business was as sole trader rather than as a company ? -i.e. he is personally responsible .

If it were not for the this debt I'd say the mortgages on all three houses seem -considering they're all trackers - quite payable. Except the two houses are empty,which leads to second question....

2) You say your husband is not working -yet the houses need decorating and because of this remain empty. Are expensive and complicated repairs needed,or is a question of a few weeks elbow grease and a few euros worth of paint and minor materials ?

If these two points (business debt and why is husband not decorating)were clearer it would be easier to advise

Many thanks for this reply. The husband's business was indeed set up as a sole trader so the debt is in his name personally.

For a few reasons (mostly medical) he would not be in a position to redecorate the rented houses right now, although we'd hope that he would return to being able to in the not-too-distant future. While I don't want to give too much detail, rest assured that he's not simply work-shy and that there are several significant reasons why he can't right now.
 
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