Debt Settlement Arrangements are one of three new personal insolvency measures introduced in Ireland only last year.  Along with Debt Relief Notices and Personal Insolvency Arrangements they present a new option to deal with unsustainable personal debts.  Because they’re so new many people currently misunderstand the consequences of entering a Debt Settlement Arrangement (DSA); for example whether proceeding with this form of personal insolvency will result in them losing their home.

A DSA only deals with unsecured debts such as credit cards, credit union loans and regular bank loans for example.  Secured debts like mortgages aren’t included.  You’ll cease paying your unsecured debts directly and will instead usually make a single affordable (typically reduced) payment into your DSA each month.

This will effectively prioritise your ability to fully pay your mortgage (including any negotiated agreement to deal with mortgage arrears) and therefore contribute to securing your position in your home.  You will also effectively become legally protected from your unsecured creditors once a Debt Settlement Arrangement has been agreed.  This provides further legal protection of your home.

DSA - Debt House Home

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Debt in Crosshairs by familytreasures, on Flickr.  This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

 

What if You Can’t Afford to Make a Monthly Payment into a DSA?

Some people may find that they’re unable to afford to make a monthly payment into a DSA, or that their affordable monthly repayment will be comparatively low compared to their debt total.  This might present a barrier to accessing this form of personal insolvency if there is little or nothing to offer the creditors in return for them accepting the arrangement.

In these circumstances some people will choose to review other options instead.  A debt management plan might help as it does not involve a property directly, however nor does it offer any legal protection for a home from creditors who are seeking to make a recovery on what is owed to them.  Bankruptcy might be a good option for non-homeowners, homeowners without equity and homeowners with relatives that could “buy-out” their equity in a bankruptcy.  However if there is equity in a home and there is nobody to “buy it out” the home could be put at risk.

Such homeowners (with equity) might therefore consider whether they’re prepared to sell their home in order to avoid bankruptcy.  By generating a lump-sum from the sale they might be able to secure a settlement with their creditors by way of a Debt Settlement Arrangement which avoids their bankruptcy.  The lump sum could be offered instead of monthly contributions (for those that cannot afford them) or in addition to monthly contributions (for those that can only pay a modest amount).

 

Can You Lose Your Home with a DSA?

So can you lose your house with a Debt Settlement Arrangement?  The answer is that this isn’t generally part of the process, but for some people it will be an acceptable price to pay in order to get a fresh financial start.  Nobody will be compelled to dispose of their home for the purposes of setting up a DSA but some people, in discussion with their personal insolvency practitioner about their options, might decide that it’s in their best interests to do so.  You’re in control over what is and isn’t eventually offered to your creditors.

 

Do you have further questions about Debt Settlement Arrangements in particular or personal insolvency in general?  Debt-Settlement-Arrangements.ie is a debt advice online resource that offers further information about these options, a forum to get your questions answered by insolvency experts and an advice team that can assist you directly on a one-to-one basis.  Go there by clicking here now.

Tom
 

Arnel Ariate is the webmaster of Money Soldiers.

Click Here to Leave a Comment Below 4 comments
Nick | Millionaires Giving Money - January 29, 2014

Very informative post. I know someone who has such an order on their home and as soon as they decide to sell the property they will have to pay off their loan which is not a good place to be. Good post, thanks for sharing.

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    Arnel Ariate - January 29, 2014

    Hi, Nick. Loans can suck. I hope we never have to resort to a debt settlement arrangement. 🙁

    Reply
Ashton James Hamilto-Ross - October 13, 2014

A debt agreement enables a debtor to enter into an arrangement with their creditors to satisfy their debts without being made bankrupt. in some cases why you might ask would the bank want bankrupt customers wouldn’t they want to sell your house and not take the chance? The bank that has kindly lent you the money for your house is making good money every month in interest from you, month in month out, as long as you keep up to date with your payments then the bank wants you in there at all costs.

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Samantha Inglis - December 13, 2014

Yes, I strongly agree with you Nick it was indeed a very informative post.It gives us information about debt settlement agreement.

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