WILL COURT’S DECISION ON ‘PARKING DEBT’ AFFECT ME?

Q I am in negotiations with my bank over mortgage arrears through a personal insolvency arrangement (PIA). What are the implications for me from this week’s court ruling over lenders ‘parking’ long-term debt for years in settlement arrangements?

AThis is an interesting case which has major implications for how we treat debt in this country. The case you refer to involved a couple with a €285,000 mortgage on a house in Drogheda now worth €105,000.

The bank wanted to write down the debt to €270,000 and split this sum in two. One half would be ‘parked’ or ‘warehoused’ and left there to be repaid at some future date and the other half would be repaid as a €135,000 mortgage.

However, in an appeal case over an earlier ruling, Ms Justice Marie Baker argued that this arrangement ‘kicked the can down the road’.

She said that there was no reason to believe that the couple would be able to clear the debt at some unspecified point in the future.

She didn’t rule out future debt ‘warehousing’ deals, which are a common arrangement. However, solicitors Anthony Joyce & Co, who represented the couple, hailed the ruling as ‘a landmark case… (that) will affect how mortgage borrowings are to be treated’. ‘Financial institutions may no longer legally be able to “warehouse” part of a mortgage when a formal debt deal is put in place for a homeowner,’ they said.

What this means for debtors such as yourself is also positive, as it means banks may veer towards writing off rather than parking debts. But there could also be a downside.

Any debt settlement deal still has to be agreed and it is largely up to your bank to write off debt as the major creditor in a PIA. Instead of doing so, banks may take a harder line with some borrowers if a deal isn’t agreed. It all depends, I imagine, on the circumstances of the borrowers and the value of their homes.

In the case of the Drogheda couple, the bank really can’t complain. The couple will repay €135,000 plus interest on a house worth €105,000. If they scuppered the PIA and repossessed the house, the bank would get only €105,000 and more bad publicity.

But what if the house was in Dublin and now worth €285,000, and the couple involved had very poor prospects for making future repayments? I imagine the bank wouldn’t be so sanguine then. Q Can you please explain the new rules about PAYE workers filing tax returns for extra income? I earn around €4,000 extra a year on top of my PAYE income through Airbnb. Do I still have to file a special Form 11 return? A Up until last January, people who earned up to €3,174 had to file a Form 12. If the extra income was above that figure, they would have to fill out a much more onerous Form 11 – and pay 4% PRSI.

Since January 1, a key change has come in that will save hassle and money for PAYE workers who get extra incomes from a range of sources, such as consultancy work, share dividends, a foreign pension, etc.

For this year’s October 31 filing deadline, the €3,174 threshold has been increased to €5,000. So not only do you avoid the dreaded Form 11 and only have to submit a form 12, you also save on 4% PRSI.

You also don’t have to pay off in full the amount owed.

Instead, the Revenue can retrieve what’s owed by lowering your tax credits for future years.

Going down the Form 12 route also means you don’t have to pay preliminary tax. However, all of that is predicated on not exceeding the €5,000 threshold. You have to balance the benefit of any income you receive above that figure with the extra hassle involved of filling out a Form 11 and paying PRSI on all the extra income.