Evaluating the First Official Irish Debt Settlement Arrangement (DSA...

A headline about Ireland's new personal insolvency relief system crows, "Most of borrower's debt written off in first deal under new insolvency regime." I thought, "Great news!"  Both that the new system is up and running, and that creditors are already agreeing to relief, which I had thought earlier was extremely unlikely.

Then I read the details. "Most" is quite a relative term. It turns out that creditors agreed to write off 70% of a reported "unsecured debt for a six figure sum." In other words, the debtor had agreed to pay creditors a 30% dividend. As readers of this blog will know, that's an extraordinary dividend. Most consumer bankruptcies around the world offer creditors zero or close to it, and even payment plans tend to offer in the single-digit range.

For relatively fortunate debtors with cash flow to service a 30% dividend to creditors, I'm glad the Irish system has already begun to offer some relief. I'm afraid the overwhelming majority of Irish debtors will not be in this position, however, and "most" of their debt write-offs will have to be in the 95-100% range to provide a meaningful measure of relief. Oh, and by the way, let's not forget that the Debt Settlement Arrangement mentioned in the story is just an agreement. If practice with Chapter 13 plans in the US is any indicator, one can expect a substantial number (66% in the US) of these kinds of plans to fail as the debtors discover that life is more volatile than they had expected. Progress under Irish DSAs and other insolvency arrangements apparently will appear on a public register, here.  Best of luck to these debtors--let's hope creditors are just as willing to agree to the next DSAs when the write-off figures move from "most" toward closer to "all."

Debt settlement photo courtesy of Shutterstock