Here are my initial thoughts before reading their solutions
The Insolvency Service Reasonable Living Guidelines give the following guidelines for a two adult household with a car
Couple|€1,400
Child at secondary school|€500
Child at primary school|€300
Total |€2,200
I don't know why they can't pay their mortgage?
Even at 4.5% SVR, the interest would be less than €2,000 per month. This leaves them with €4,000 per month or €1,800 after paying the interest on their mortgage.
If they did not have the personal guarantees there would be no need for any arrangement. They would be in negative equity and have high debts, but they would not need any sort of deal.
Let's work through various options.
Option 1 - A Personal Insolvency Arrangement
I don't think that they would be able to retain their home under a PIA. They paid €1m for it in 2006, so it would seem to me to be in excess of their needs. They could presumably sell the home and rent.
Having said that, a PIP would probably conclude that a €300k home is reasonable for them.
So maybe try a PIA. Treat the negative equity as an unsecured debt and you have €430k of unsecured debts. Pay interest only on the mortgage and pay €1,800 per month against the unsecured debts for 6 years that is €120,000 after the PIP's costs, so the unsecured creditors get 25% paid off over 6 years.
They get to keep their home, but any increase in the value can be clawed back.
Option 2 - Sell the house and enter a Debt Settlement Arrangement
If they sell the house, they will have €430k of unsecured debt.
They will have €4,000 per month towards rent and paying their creditors.
If they rent for €1,000 per month, they will have €3,000 for their creditors or €180,000 over 5 years.
Option 3 - Go to the UK for bankruptcy
Option 3A - Go bankrupt in Ireland
I don't see why they would subject themselves to a DSA over 5 years.
So they might propose a DSA over 3 years and if that is rejected, go to the UK.
They obviously have reasonable jobs in Ireland and they would have to factor in whether they could earn this amount again if they leave Ireland and return.
Option 4 - Try to do a voluntary arrangement.
If their guarantee and their mortgage is with the same bank, then that creditor will have €300k out of a total of €435k or 70% of the creditors, enough to push through a DSA or a PIA. They could use this to offer something to the other creditors.
Maybe a mortgage moratorium for 12 months where they use their spare cash to pay the unsecured creditors after which the unsecured creditors write off the remaining balance. This leaves them with a mortgage of €530k on a house worth €300k and no other creditors.
What will the bank's attitude be?
If I was their banker, I would suggest a voluntary arrangement along the above lines. If the other creditors refused, I would support a PIA along the following lines:
1) Reduce the mortgage to €300k -
Let's say they are 45, so they have 25 years to repay the mortgage
That would be a monthly repayment of €1,600 which would be around €1,100 interest and €500 capital
2) Pay off the unsecured debts over three years with the balance.
The advantage to the bank is that if they will be well able to afford the mortgage repayments and if they sell the house, the bank may get a clawback.
My recommendation
This couple has good earnings power but are insolvent. They should go to the UK and go bankrupt. A lot of disruption up-front for 18 months, but they come home debt-free with a clean start.
If they insist that they want to keep their home, try a voluntary arrangement with a split mortgage.
If the creditors don't agree, try a PIA and hope that the bank won't veto it.
