A major new initiative has been agreed with the banks and the Central Bank to alleviate the debt burden of over-stretched borrowers.
The new structure, which will operate on a pilot basis from next month, will include a write-down of debts.
The Central Bank said the purpose of the initiative is to secure co-operation between mortgage lenders and unsecured lenders, such as credit card companies and credit unions.
The idea is that it will alleviate stress on borrowers who are continually being pressurised to repay multiple lenders.
The Central Bank said the aim of the scheme is to achieve ''sustainable and fair outcomes'' without the need for people to enter the full insolvency process'.
''It is focused on enhancing co-operation between lenders of secured and unsecured debt in order to resolve distressed debt at an early stage,'' it said.
Under the agreements, borrowers would pay a set amount to their creditors on a proportionate basis for two years.
For example, if the borrower has to service a reduced mortgage of €100,000 and a credit union loan of €10,000, only 10% of their income set aside for servicing loans would go to the credit union and 90% would go to repay mortgage debt.
If the borrower is still in difficulty after two years, the credit union loan would be wiped out.
Any deals agreed will require the agreement of lenders and borrowers.
The Central Bank will run the scheme on a pilot basis for three months with 750 borrowers who will be from a representative sample of distressed debtors.
"On a case by case basis and in the context of affordability and reasonable living arrangements of the borrower, the secured lender will consider a range of restructure options. These arrangements are for the most challenging cases and the reduced payments provided are intended for the benefit of the distressed customer and not for the benefit of any other lender,'' the Central Bank's document said.
"On a case-by-case basis, the secured lender - for a period of two years - may accommodate the servicing of other loans alongside the mortgage on a proportional basis to the remaining sums outstanding. After the two-year period, the available cashflow will be used to service the repayments on an appropriate family home,'' the bank added.
Business borrowers and buy-to-let investors will be excluded from the arrangements.
The agreements would operate outside the personal insolvency scheme, which requires the publication of borrowers' names on a register.
''The decision to enter into this pilot is a constructive step by the lenders involved to help their own customers," said the Central Bank's Director of Credit Institutions and Insurance Supervision, Fiona Muldoon.
She said the aim of the scheme is to test the viability of the proposed negotiated approach and to determine its effectiveness in achieving workable sustainable outcomes for borrowers and lenders.
''I expect that the lenders participating in the pilot scheme will include all the main retail banks and many credit unions as well as other unsecured lenders", she said.
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