The PIB Bill, as proposed, makes no difference to those with unsustainable mortgages

[Brendan Burgess]

In terms of bankruptcy, with this bill it is absolutely taken out of the banks hands. The bank has no say whatsoever if someone decides to declare themselves bankrupt.

I don't think that this is correct. Surely someone applies for bankruptcy. They have to show that they are unable to meet their repayments as they fall due.

The bank could certainly object to the court. Obviously it's the judge's decision at the end of the day.

Brendan

 

[frostie]

Surely they can object?

Not really, the only instance would be for example if the bank beleived that the person seeking bankruptcy had a load of money under their mattress, and could show evidence to back this theory up (eg borrowing a large sum of money a few months before declaring bankruptcy etc) or if the bank thought that there was a better solution (if they were the main creditor).

This is working in reverse however. The trustee would have to look at all other avenues before bankruptcy, which is why this new bill should work.
If the bank refuses to negotiate on negative equity or repayments on a mortgage, for example, then a PIA would fail, but the client could then persue bankruptcy. The bank cannot then object, if the bank had rejected previous attempts (under a PIA) to resolve matters. They could face a bigger loss through a debtor's bankruptcy.

Edit- It is the judge's decision, but if a person was able to meet their repayments when they fell due, why would they be even looking into this? This would be the job of the trustee, to investigate whether or not this was actually the case. The trustee has as much responsibility to the creditors, as they do to a debtor in a PIA, but in bankruptcy, the realisation of the assets for the benefit of the creditor is the main priority.

 

[Brendan Burgess]

If the bank refuses to negotiate on negative equity or repayments on a mortgage, for example, then a PIA would fail, but the client could then persue bankruptcy.

Where are you getting this from? Negativeequity will have nothing to do with it, as far as I understand it.

The criterion will be whether a borrower can make the payments as they fall due.

Brendan

 

[frostie]

Sorry I'll clarify it - if it's a case that the debtor is just trying to walk away, it's unlikely that they will be made bankrupt, just for the sake of discharging the negative equity. If the debtor can make the repayments, then they should continue to do so, that would be the view of any court. These measures are not a generalised debt write-off system, they are designed for people in financial difficulty.

But, where the borrower's mortgage is unsustainable, and they can't meet the repayment, negative equity can be brought into the mix in the PIA - it's a negotiation, and as has been stated on here previously, and as we know write-offs in settlement are happening already. But these are normally where the debtor gets the best price and settles in final, and the bank takes a hit for the money.

The banks do not want a raft of property on their books. If restructuring a mortgage until the borrower is 100 years old isn't going to be workable in reducing the payments to an affordable amount, then the bank can either
a) let the borrower declare themselves bankrupt, and official receiver recovers the value of the asset
b) seek repossession, as they have security over the asset, they sell it themselves, and the borrower declares bankruptcy on the balance of negative equity
c) restructure the mortgage so that the borrower can afford the repayment, and if this requires debt write-off to enable this it could result in a better deal for both the bank and borrower.

There is nothing I can see in this bill precluding negative equity negotiation - where the mortgage as it stands is unsustainable - (it doesn't have to be for the full value of the negative equity - as long as the mortgage balance reduces, it could be workable), and if it works for the lender and the borrower, why not!