Vincent P Martin: Help finally at hand as heroic homeowners get support

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From

The Independent

August 23 2013

Vincent P Martin: Help finally at hand as heroic homeowners get support

Vincent P Martin

THEY are 'The Forgotten' – a large cohort of family homeowners in long-term, irreversible mortgage arrears, cut adrift and beyond recovery. In New Beginning, we see at first hand what it is like for this marginalised group to deal with banks, and there is only one way to describe it: a hard slog. However, help is at hand. Bring on the Personal Insolvency Practitioners, also known as PIPs.

There is lots of misinformation being peddled by banks and some consumer advocates, which naturally frightens members of the public. This is unacceptable.

To understand the process, we must first understand the basic legal position behind the law of borrowing. To date, the law has been black and white: you borrow, so you must pay back in full. If you cannot pay you face a lifetime being hounded by creditors or a life sentence in bankruptcy, but this is all about to change.

Here's how the new system of working your way out of insolvency will function. The formal process begins with the borrower appointing a PIP, who works with him or her to develop a holistic plan that will bring the person back to solvency as soon as possible. It should (though does not have to) cover all debts. The PIP then puts that proposal to the creditors.

At the same time, the PIP sets out exactly what those creditors will get in bankruptcy. Once the proposal gives the creditors more than the bankruptcy scenario, it will make commercial sense for them to take the deal – even though it means a debt write-down, and often a huge one.

The basis of this new insolvency system is the recognition that, in market economies, individuals go broke. There is no moral judgment here – it is just a fact of life. But individuals can now be allowed return to normal life, become economically viable again and play their role in contributing to the creation of new jobs. To do so, this will mean debt restructuring (otherwise known as debt write-down).

Such an arrangement is vital not only for the people concerned and their families but for the economy. How can the economy function when tens of thousands of mortgage holders are forgotten and cut adrift?

But debt write-down needs to be organised in a proper and structured fashion. Thus we have the new insolvency system.

But what about the stigma of bankruptcy? In the US and the UK, there is no stigma. In the US, many of the greatest business and political figures went bankrupt, such as Walt Disney, Henry Ford and Abraham Lincoln. In the UK, the bankruptcy laws are contained in an act known as the Enterprise Act! In Ireland, it will be the same. Bankruptcy can, in time, be seen as a necessary and liberating step – a sign that the borrower refused to be a slave and took matters into his own hands. He insisted on freedom!

What about the family home?

When a PIP puts forward a proposal, he/she must ensure, if at all possible, that ownership of the family home is protected.

Some complain about the costs of the formal insolvency process. This is utterly mistaken. The costs of the PIP are borne by the banks and so, for most people, there will be no charge and where there is, it should be nominal. The banks have set their face against recovery and the restoration of national sovereignty. They have refused to accept that people must be allowed to return to solvency and that anything else is pure madness. As always, they have put themselves first to the huge detriment of the people that bailed them out.

But now our time has come. Now, with the new laws, we can take matters into our own hands.

We can legally demand solvency and recovery for all. To do anything else – to call for anything less – is at best misguided and at worst treacherous.

Vincent P Martin is a practising barrister and co-founder of New Beginning (newbeginning.ie), which seeks to find a fair and sustainable solution to the problem of over-indebtedness.

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