In recent weeks, I’ve been receiving quite a few e-mails, letter and telephone calls from readers who want to discuss their number one problem with me – debt.
A young couple have both lost their good paying jobs and now have no way to meet their monthly mortgage payments of €2,800 a month and their other debts. What should they do?
A father wonders if his son, who bought a buy-to-let holiday home in Florida in 2007 and who has seen his income fall this year and cannot meet his repayments anymore would be pursued by his US lender “if he just walked away from his loan”.
A woman is desperately worried about losing the family home – she has three young children and her husband has gone to England to work. The bank is harassing her, she says: “I can’t pay the ESB bill on time, or the credit union, let alone €900 to them.”
Aside from serious mortgage debt, they all had another thing in common: none of them had met face to face with the banks, or had visited MABS, the nation’s Money Advice Budgeting Service.
With the NAMA debate now done and dusted, attention is finally turning to the wider debt problems.
These largely involve ordinary people whose loss of income, bonuses, commissions and their very jobs also explains why there has been a horrific doubling of jail terms to debtors over the past year.
One in five households are now unable to make their full rent or mortgage repayments, which is a massive and growing crisis.
At their annual conference last week in Dublin, the Law Reform Commission laid out the problem very succinctly.
As a nation we have a household debt to disposable income ratio of 176 per cent, meaning that for every €10,000 earned we are spending 17,600, one of the highest ratios in the world. In 1995 that ratio was just 48 per cent.
Even in the United States – where sub-prime foreclosures sparked the collapse of the world’s financial system – the ratio of debt to income is ‘only’ 138 per cent and only rose by 48 per cent between ’95 and 2008, compared to 276 per cent here.
There is a growing list of suggestions about how to mitigate our private sector debt crisis – as opposed to how to actually solve it once and for all.
My preference is already on record, here and in other columns: it gets paid off, or written off and you live with the consequences, however brutal. At least you know that you can move on and start again.
At last week’s Conference, the question of insolvency and bankruptcy reform was finally raised.
It would appear that government will at least be urged to set up a workable and affordable bankruptcy system here so that businesses and individuals who are now insolvent can set in motion a bankruptcy process.
The Individual Voluntary Agreements in the UK may be the form that this ends up taking, though it does not always include mortgage debt.
Not everyone with a massive mortgage bill, negative equity and credit card debts is insolvent, not if they can show that they might have the ability to keep repaying their bills (even after a short period of unemployment.)
The Government and banks already know that because of the size of the debt problem here, far more lenient debt recovery schedules will have to be worked out for the majority of debtors.
There are also suggestions that a NAMA-style agency be set up that will see the state or the banks do an equity-for-debt swap with householders in serious negative equity.
Their ‘equity’ can then be recovered, they say, when property prices recover.
Other ideas include the banks being forced to take equity in the property with a rental/purchase repayment in place of the mortgage or that they even write off some of the outstanding capital.
Needless to say, the cost of any of these suggestions will be in the billions and only add to the national debt.
Unfortunately, none of the above is suitable for people who were grossly over-borrowed from the start and now, as result of unemployment, have no immediate, or perhaps even medium term prospect of producing an income stream.
For them, the most realistic option is an insolvency/bankruptcy arrangement.
Until any of these ideas become legislation, there are a few ways to keep the creditor from the door and perhaps to even keep your home.
Next week, the column will be devoted to debt rescheduling:
* How the bank moratorium works
* The plus and minuses of seeking help from MABS and/or a private debt “councillor”
* How families can help each other and ways to make your house help pay for itself and the consequences of personal insolvency and bankruptcy.
These are worrying times, but the debt holes that so many have fallen into are not insurmountable.
We all need to step back and, with some help, take a more objective view. Sharing the problem – especially with creditors – is also a way of lightening your personal load.
For all your banking and insurance needs, check out Postbank at your local post office or LoCall 1890-30-30-40