Would a PIA with debt write down below Market Value ever be accepted?

Discussion in 'Personal Insolvency, bankruptcy, etc' started by Redzer, Jun 19, 2018.

  1. Redzer

    Redzer Frequent Poster

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    66
    Long story short I'm meeting a PIP with a family member (call him 'John') this week and its borderline whether a PIA will be accepted or if bankruptcy is the only option.

    John has secured debts of €243k and unsecured debts of €102k with BOI and also owes €7K to the CU. He had previously been self employed and was facing bankruptcy due to high debts and low income over several years but in mid-2016 he got a regular job, engaged a PIP and starting paying back additional payments. However, while the PIP had been unsuccessfully trying to get the bank to agree to a settlement since then, he is only about to formally propose a PIA now.

    John's difficulty now is that the market value of the house has risen and may be pushing him back into bankruptcy territory even with further increased payments.

    He originally had been paying €800 p.m. on the secured mortgage and had increased that to €1k p.m. His PIP had recently prepared a draft PIA based on a Market Value of €200k and repayments of €1,200 p.m. (18yrs@3%). Initially this seemed just about manageable based on nett income of €2,430 p.m., RLE of €1,050 p.m. leaving €180 p.m. for PIP Fees and Unsecured debts (2430-1200-1050=180) for the 6 year period.

    However when I reviewed it I noticed the income figure was based on last year's P60 and included an unusual level of overtime while the RLE excluded a maintenance order for his son who is just finished 1st year in college. That reduces the income by €60p.m. and increases the RLE by €140p.m. I believe we'll have to maximise the secured debt repayments so I'm also suggesting reducing the amount servicing the unsecured from €180 to €130 p.m. resulting in a maximum repayment of approx. €1,050 (2370-1050-1190=130). I also noticed the 18 year mortgage period would have John paying it until aged nearly 66 so I presume its correct to deduct a year from that so it finishes just before he turns 65.

    The difficulty now is that repayments of €1,050p.m. over 17 years @3% (while coming to a total repayment amount of nearly €215k) only suggest a Principal Sum of €168k compared to a Market Value of €200k.

    I've looked at alternatives to see if there's any way we can make it work but I don't know if I'm grasping at straws or if a Judge would even accept it. Even if John was to take the hit for the €140p.m. maintenance order from within the normal RLE of €1,050 that would still only suggest a Principal of about €190k. To make the market value of €200k would also require an additional risk of factoring in overtime which might not happen.

    If the Bankruptcy route was taken BOI wouldn't realise full Market Value anyway as there would be transaction costs so could it be possible that any PIA would be accepted below Market Value?

    Is there any consideration for the total repayments that the lender would receive under the other scenarios? e.g. €215k-€250k+

    Any advice welcome.
     
  2. Jim Stafford

    Jim Stafford Frequent Poster

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    410
    A key document in any PIA is the "Comparison of a PIA with a Bankruptcy".

    In preparing such a comparison, the PIPs have agreed with the banks that the market valuation of a property may be discounted by at least 10% when showing the estimated financial outcome in a bankruptcy.

    The courts have effectively held that if the outcome to creditors in a PIA is €1 better than a bankruptcy, then the courts would support a PIA. So the answer to your question is that a bank may be obliged to receive less than full market value of a property. (The maximum discount I have seen in a PIA is 15% for a property.)

    Jim Stafford
     
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  3. Barnerd

    Barnerd Registered User

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    Jim. When you say the market valuation "may be discounted by at least 10%" for the purposes of the PIA v Bankruptcy comparison.

    Is the 10% a minimum discount? If the property is worth €300,000 does it automatically get written down to €270,000 or less?
     
  4. Jim Stafford

    Jim Stafford Frequent Poster

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    410
    As advised above, the PIPs have agreed with the banks, in meetings conducted by ISI, that the market valuation of a property may be discounted by at least 10% when showing the estimated financial outcome in a bankruptcy. So in preparing a bankruptcy comparison, a house worth €300,000 would be discounted by at least 10% to allow for auctioneers' costs, insurance, loss of interest etc

    Such a discount means that most PIA's will provide a better outcome than a bankruptcy.

    Jim Stafford
     
  5. Barnerd

    Barnerd Registered User

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    Thanks for that.