LRC: No one should be jailed for failing to repay debt

NO ONE should ever be jailed for failing to repay personal debt, not even those who can pay but won’t, according to recommendations by the Law Reform Commission (LRC) which will be published today.

The commission will recommend that those who fly in the face of a court order and “wilfully refuse” to repay debt, despite having the capacity to do so, should be ordered to do community service instead.

Commission director of research Raymond Byrne said it made good economic sense not to jail people for personal debt.

“Say someone owes €1,000. The cost of one year in prison is more than €70,000. If you do the sums you will see it costs the taxpayer more to keep the debtor in jail than it would cost to repay the debt.

“Also, the debtor is not working while in prison and cannot repay his or her debt.”

The Commission’s Final Report on Personal Debt Management and Debt Enforcement also proposes:

* A non-court system of debt settlement overseen by a Debt Enforcement Office, helping those with modest debt levels to avoid expensive High Court legal battles.

* The introduction of a Debt Settlement Arrangement for those who can pay at least some of their debt and would make a legally binding commitment to do so over a period of up to five years. At the end of this, the debt would be deemed to be repaid in full and the debtor would be able to make a “fresh start” without having any damage to their personal credit rating.

* The introduction of a Debt Relief Order for debtors whose circumstances are so bad they have virtually no prospect of paying back. This would be a once-in-a-lifetime order. The effect of this order is also that the debt is deemed to be discharged.

In addition, the commission proposes that a single regulatory body be responsible for debt collection agencies and money advisers given their related roles, and that a licensing system be introduced to regulate debt collection.

According to the commission, the licensing system would also deal with unprofessional debt collection undertakings “and, more worryingly, debt collectors who engage in criminal acts such as harassment”.

Changes to bankruptcy laws are also recommended including increasing from €1,900 to €50,000 the minimum debt level required to bring a creditor’s bankruptcy petition.

“At the moment, you can go to the High Court to make someone bankrupt if they owe you €1,900.

“But there are hundreds of thousands of people in debt and the reality is they can’t be catered for in the High Court system. It would be better to have a cheapish system that helps people come out the other side.”

The commission’s proposals do not apply to mortgage debt, an area addressed by a separate expert group.