Brendan Burgess
Founder
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I am drafting my initial thoughts on this critical topic. This post contains the LRC sections on the subject. There is very little on mortgages when you consider that around almost [broken link removed] is mortgage debt. It is also very little in the context of the problems of negative equity.
The replying post, is my first stab at a submission.
5.158 The Commission invites submissions as to the assets which should be exempted from distribution to creditors under formal bankruptcy procedures.
The Protectio[FONT="]n of the Debtor’s Home[/FONT]
5.159 The issue of the forced sale of the home is an extremely complex question. A requirement to sell the family home would not comply with the humanitarian/rehabilitation and social welfare theories of insolvency discharge, and may not be economically rational in all circumstances.The other side of this argument is that a creditor will usually hold the debtor‘s home as security and their legitimate interests must be considered.
5.160 No general consensus exists across Europe as to the appropriate treatment of this issue. This can largely be attributed to the different housing policies prevailing in different countries. The most common response is not to provide special protection for the home. Thus under Dutch law payments towards a mortgage loan are explicitly excluded from exempted living expenses, and the practice code on exempted income and assets suggests that in most cases a debtor should sell his or her mortgaged home and find alternative accommodation.
5.161 Some countries‘ laws however permit a debtor to keep his or her home under certain circumstances.
In Denmark, the debtor will only be required to sell the family home where the expenditure on housing is unreasonable and where the debtor can find less expensive accommodation elsewhere.
The Swedish Supreme Court has stated that a debtor must sell his or her home only if this would benefit the creditors either by realising a substantial equity in the home or by significantly reducing the debtor‘s living expenses.
A similar argument has been previously presented in Ireland by the Free Legal Advice Centres, where it has been suggested that a debt settlement should aim to protect the debtor‘s home, but that the debtor may be required to sell his or her home and move to less expensive accommodation in certain circumstances where the debtor has a large equity in the home and the home‘s value is high.
A similar approach exists in France, where the over-indebtedness commission or judge will only require the sale of the debtor‘s home where the debtor would not have to spend a similar sum on alternative accommodation.Under French law if the debtor does however sell his or her home and this does not satisfy the mortgage debt owed, the debtor receives a discharge of the deficiency obligation owing.
In Norway, it appears that mortgage interest only is paid during the course of the debt settlement repayment period, and that the repayment of the principal is suspended until this period ends.
An alternative approach could be for a part-payment of the principal, such as 50% of each instalment, with the remainder to be paid once the plan is completed.
5.162 It should be noted that the protection of the debtor‘s home was a priority under the IBF-MABS Pilot Debt Settlement Scheme described above, and debt settlement plans were always designed with this goal in mind. In addition, section 61 of the Bankruptcy Act 1988 provides that the Official Assignee may not sell the bankrupt‘s family home without a court order, and that the court may postpone the sale of
the home having regard to the interests of the bankrupt‘s creditors, spouse and dependants.
5.163 The Commission recognises the importance of protecting a debtor‘s home, while also acknowledging the legitimate interests of creditors in enforcing their securities and in recovering as much of the debt owed as possible. The Commission thus invites submissions as to how these interests can be best reconciled through the approach taken by debt settlement legislation to the question of the sale of the debtor‘s home.
5.164 The Commission invites submissions as to the approach the proposed debt settlement system [FONT="]should take to the debtor’s home. The Commission in particular invites views as to the circumstances in which the debtor’s home should be protected from s[/FONT]ale, and the circumstances in which the debtor may be required to sell his or her home.
The replying post, is my first stab at a submission.
5.158 The Commission invites submissions as to the assets which should be exempted from distribution to creditors under formal bankruptcy procedures.
The Protectio[FONT="]n of the Debtor’s Home[/FONT]
5.159 The issue of the forced sale of the home is an extremely complex question. A requirement to sell the family home would not comply with the humanitarian/rehabilitation and social welfare theories of insolvency discharge, and may not be economically rational in all circumstances.The other side of this argument is that a creditor will usually hold the debtor‘s home as security and their legitimate interests must be considered.
5.160 No general consensus exists across Europe as to the appropriate treatment of this issue. This can largely be attributed to the different housing policies prevailing in different countries. The most common response is not to provide special protection for the home. Thus under Dutch law payments towards a mortgage loan are explicitly excluded from exempted living expenses, and the practice code on exempted income and assets suggests that in most cases a debtor should sell his or her mortgaged home and find alternative accommodation.
5.161 Some countries‘ laws however permit a debtor to keep his or her home under certain circumstances.
In Denmark, the debtor will only be required to sell the family home where the expenditure on housing is unreasonable and where the debtor can find less expensive accommodation elsewhere.
The Swedish Supreme Court has stated that a debtor must sell his or her home only if this would benefit the creditors either by realising a substantial equity in the home or by significantly reducing the debtor‘s living expenses.
A similar argument has been previously presented in Ireland by the Free Legal Advice Centres, where it has been suggested that a debt settlement should aim to protect the debtor‘s home, but that the debtor may be required to sell his or her home and move to less expensive accommodation in certain circumstances where the debtor has a large equity in the home and the home‘s value is high.
A similar approach exists in France, where the over-indebtedness commission or judge will only require the sale of the debtor‘s home where the debtor would not have to spend a similar sum on alternative accommodation.Under French law if the debtor does however sell his or her home and this does not satisfy the mortgage debt owed, the debtor receives a discharge of the deficiency obligation owing.
In Norway, it appears that mortgage interest only is paid during the course of the debt settlement repayment period, and that the repayment of the principal is suspended until this period ends.
An alternative approach could be for a part-payment of the principal, such as 50% of each instalment, with the remainder to be paid once the plan is completed.
5.162 It should be noted that the protection of the debtor‘s home was a priority under the IBF-MABS Pilot Debt Settlement Scheme described above, and debt settlement plans were always designed with this goal in mind. In addition, section 61 of the Bankruptcy Act 1988 provides that the Official Assignee may not sell the bankrupt‘s family home without a court order, and that the court may postpone the sale of
the home having regard to the interests of the bankrupt‘s creditors, spouse and dependants.
5.163 The Commission recognises the importance of protecting a debtor‘s home, while also acknowledging the legitimate interests of creditors in enforcing their securities and in recovering as much of the debt owed as possible. The Commission thus invites submissions as to how these interests can be best reconciled through the approach taken by debt settlement legislation to the question of the sale of the debtor‘s home.
5.164 The Commission invites submissions as to the approach the proposed debt settlement system [FONT="]should take to the debtor’s home. The Commission in particular invites views as to the circumstances in which the debtor’s home should be protected from s[/FONT]ale, and the circumstances in which the debtor may be required to sell his or her home.