Couple ‘living on borrowed time’ fail to have insolvency arrangements approved

A Co Kilkenny couple living “on borrowed time” for about a decade have failed to get court approval for personal insolvency arrangements (PIA) involving restructuring their mortgage debt from €361,000 to €303,000 over 32 years.

The PIAs for Andrew Maloney, and his wife Fiona, of Kiltorcan, Ballyhale, who have four children, would effectively mean an interest-free mortgage over 17 of those years, the High Court’s Mr Justice Alexander Owens said.

It was proposed, after reducing their mortgage to about €303,000 after 32 years of monthly payments, the residual debt would be sold off by selling or mortgaging their house, valued at €365,000.

The court was being asked to turn a repayment mortgage into an interest-only mortgage for €303,000 of the existing borrowing, to be repaid from “unidentifiable” means after 32 years.

The lender – which was unnamed in the judgment – got an order for possession against the couple in 2016 and sought to execute it in 2022, following the end of the Covid-19 pandemic, he noted.

The couple had “very little engagement” with their lenders until the attempt to renew the possession order and “have been living on borrowed time for nearly a decade”.

While their creditor has been proceeding slowly, they had the advantage of living in a house bought with loans which they failed to repay, he said.

Mr Maloney is now aged 50, Ms Maloney is aged 45 and they have four children, the judge noted.

The evidence did not prove they would have sufficient means to be reasonably likely to comply with the PIA terms and showed the proposed PIAs were “unaffordable”.

They have a “poor payment history” and it was “more likely than not that they will go into default again in the short to medium term”.

He was not satisfied the proposed PIAs were not unfairly prejudicial to the interests of the secured creditor. He did not accept the logic of their Personal Insolvency Practitioner’s position that, when the balance of the restructured loan came for repayment in 2054, the value of the equity of redemption in this house will have increased by over €371,000.

That was “speculation”, as were suggestions the couple will then be in a position to remortgage, pay down their loan from pension lump sums or other means, or sell their home and buy a cheaper dwelling.

In a recently published judgment, the judge found the debtors had not met the relevant requirements of the PIA Act and dismissed their appeals against the Circuit Court’s refusal to approve the PIAs.

He noted the mortgage arrears, comprising outstanding principal and unpaid interest, was about €91,189 at time of proof of debt.

The proposed PIAs were structured to last for a year during which most of the debtors’ free income would go towards paying their PIP’s fee, a “very small” dividend would go to some unsecured creditors, no payment would be paid on their mortgage loan and interest will “roll up”.

After the 12 months, they would make monthly mortgage payments of €1,100, falling to €900 after year five. Payments would rise to €1,400 between years 12 to 19 and fall to €750 for the final 12 years.

This would turn the borrowing into “virtually an interest-only mortgage” over 17 years, he said.

Their home is the only asset currently available to repay the large residual debt at the end of the 32 years, he said.

Assuming current guidelines on reasonable living expenses remained applicable, the uncontradicted evidence was the PIAs would mean the debtors and their children will bear a monthly shortfall of between €132 and €622 in their reasonable living expenses during the first seven years of the restructured mortgage loan, he noted.

While he appreciated the couple made monthly payments of €1,450 since their protective certificate issued two years ago, this was in the context of “large arrears”, the reason for which was not explained.