Overview: Dealing with debt

Information

How debts can get out of control

In Ireland, any form of credit is a debt, so unless you pay cash for everything then you have debts. It is only when you are unable to keep up with the payments that it becomes a problem.

When something unforeseen happens and you have a lot of extra expense, you might find that you can't keep up your payments or even pay your everyday bills. If you have suffered a bereavement, separation, illness, loss of employment or some other family problem, you might feel too upset or too embarrassed to contact your creditors at this stage and tell them you are having problems with payments.

This is often what happens next:

• Missed payments and letters from creditors.
• Borrowing money to pay bills and catch up with arrears (more debt).
• Paying whichever creditor is putting on most pressure.
• Making promises to pay unreasonable amounts (because of fear or embarrassment)
• Broken promises and more pressure from creditors
• Legal action.

At this stage, many people are so upset by their problems they can't sleep at night. Many people become ill from worry.

If you are not coping, it is very important to get help. If you don't deal with your debts, you may end up having your home repossessed and/or going bankrupt. The free, independent and confidential Money Advice and Budgeting Service can help.

Money Advice and Budgeting Service (MABS)

MABS is a free and confidential service for people with debt problems and money management problems. A MABS money adviser will:

• Help you deal with your debts and make out a budget
• Examine your income to make sure you are not missing out on any of your entitlements
• Contact your creditors on your behalf with offers of payment if you are not able to do it yourself
• Help you decide on the best way to make the payments.

MABS and the Irish Banking Federation (IBF) developed the IBF/MABS Operational Protocol: Working Together to Manage Debt (pdf) to help people in debt to agree a sustainable repayment plan with their lender and avoid the need for any legal action. If a repayment plan is agreed, any existing legal action will be suspended as long as you follow the agreed repayment plan.

The following members of the IBF have signed up to the protocol: ACC Bank, AIB Bank, Anglo Irish Bank, Bank of Ireland, Bank of Scotland (Ireland), EBS Building Society, KBC Bank Ireland, National Irish Bank, Permanent TSB, MBNA Europe Bank and Ulster Bank. These credit institutions have committed to work with MABS money advisers to help customers to address and manage debt problems.

MABS can also help you to agree a sustainable repayment plan with other creditors.

How to deal with debt by yourself

Most creditors are very understanding when they know you are having difficulties. If nobody contacts them to tell them what's wrong, they think you just haven't bothered to pay.

The following steps will help you.

Make out a full budget (what it costs to live for a full year). Try using the MABS personal budget calculator form here.

Your budget should include all living expenses, otherwise you will make offers of payment you won't always be able to afford. For example, winter is more expensive than summer (more heating, more expensive clothing and footwear, Christmas, etc).

You should include the costs of education, health, travel, job searching, clothing and footwear in working out your budget and adjust this to a weekly amount.

You will not spend this amount every week but it will give you a better idea of what you can afford. Many people would be surprised to find out how much the average family would spend on the basics in a year.

Prioritise your expenses.

The roof over your head, heat, light and food are your main priorities. After this, you must list your expenses in order of importance. You must be honest with yourself about expenses like cigarettes, alcohol, etc. See what expenditure you can reduce.

Contact your creditors.

When you have completed a budget and you are reasonably sure of your expenses, make a list of your creditors and what you owe them. Talk to the creditors and explain your difficulties. Tell them that you have other creditors, that you have a limited amount of money to be divided between them and that you are trying to be fair to all of them.

If your problems are temporary, give them some idea of when they might expect full payments. If you can't be sure of when this will happen, tell them so.

If your problems are long-term, be honest and tell the creditors you may never be in a position to make the original payments. If interest is being added and this means you will never have the debt paid, ask them to suspend interest.

What will happen if you ignore the problem

The problems will get worse if you do nothing. If your creditors have taken legal action, do not ignore the letters. If you get a legal letter about a debt and you don't hear from them again for some time, don't assume they've forgotten about it - it won't go away. It is very important that you make contact with the creditors or the solicitor.

There is a series of court hearings in the debt collection process. The court will give you a chance to tell it what you can afford to pay - if you turn up. Otherwise the judge will just decide on a weekly amount but won't have any idea of what you can afford. If you are to appear in court, make out a financial statement (income, expenses and debts) and leave it into the courthouse for the attention of the judge a couple of days before the hearing. Send a copy to the solicitor for the creditor too.

An overview of debt terminology and debt procedures

There are different forms of debt, including mortgages, loans, overdrafts, credit cards and hire purchase agreements. Some debts, for example, mortgages, are 'secured' - this means that goods or property, usually your house, is used as security in case the debt is not paid. Find out more about types of debt and debt terminology in our glossary of debt terms.

Some debts have specific rules and practices in place in relation to how they are managed and collected. These are mainly debts which are owed to the State or a State body. In particular, taxes, social welfare overpayments, local authority rents and housing loans, waste charges, utilities bills, TV licences, dog licences and the Non-Principal Private Residence Charge all have specific rules and procedures. Find out more about the rules for specific debts.

There are also rules in relation to collecting debts under consumer credit legislation, including rules in relation to privacy, contact points and harassment and intimidation.

If you do not engage with your lender, your lender will most likely initiate legal proceedings to recover the debt. The case can be taken in the District Court, Circuit Court or High Court, depending on the amount of money involved. Once your lender has a Court judgement setting out the debt, this judgement can be enforced in various ways, including, in extreme cases, through bankruptcy proceedings. Being in arrears on debt repayments can also have other consequences, for example, it can affect your credit rating and make it difficult to get credit in the future.

Future plans in relation to debt procedures

The Law Reform Commission published an interim report on Personal Debt Management and Debt Enforcement (pdf) in May 2010 and a final report (pdf) in December 2010. Its recommendations include several possible changes to the law on the enforcement of debt.

An inter-Departmental Working Group on Personal Debt Management and Enforcement has been established to consider appropriate measures.

The Civil Law (Miscellaneous Provisions) Act 2011 (Section 30) (pdf) updates some of the rules on bankruptcy. Subsection 30(g) of the Act provides:

• For the automatic discharge of a bankruptcy after 12 years and
• For a bankrupt to apply for a discharge after 5 years.

This subsection of the Act came into force on 10 October 2011.

The Programme for Government 2011 proposes to convert the Money Advice and Budgeting Service into a strengthened Personal Debt Management Agency with strong legal powers. It also proposes to fully implement the Fines Act 2010; to end the practice of imprisoning people who cannot pay fines and debts; and to introduce a system which takes a small amount of money from wages or social welfare by “attachment order” to pay off a fine or debt over time, as an alternative to imprisonment for people who refuse to pay.

The Joint Oireachtas Committee on Social and Family Affairs has published a report entitled "High Levels of Indebtedness in Irish Society".

The Fines Act 2010 includes a provision that allows court fines to be collected through a receiver in a similar way to a civil debt. This provision of the Fines Act 2010 is not yet in force.

Where to apply

You can contact your local MABS office for advice and assistance.

You can also ring the MABS Helpline: 1890 283 438 (9am - 8pm, Monday - Friday) or email: helpline@mabs.ie