Planned insolvency bill meets cautious approval
Flac chief Noeline Blackwell welcomed the draft of a proposed Personal Insolvency Bill, saying there was at last a recognition that people had been given far too much money in the boom times. Now there was light at the end of the tunnel for people drowning in debt.
“It has been left very late, but we are finally recognising that allowances have to be made for people, we are confronting reality.”
Ms Blackwell said that people had borrowed way above what they should have and now could not pay — but that they should never have been given the money in the first place.
The proposed legislation puts forward a range of debt relief schemes.
Concern was expressed over a clause which allows people in debt to retain the family home.
“This is a very novel piece of the legislation which allows for family home to be retained, but a majority of creditors have to agree to this and I would be concerned that there is no independent person or body overseeing this and we would see that as a big gap,” she said.
The personal insolvency arrangement will be run by personal insolvency trustees, she said.
“There will be personal insolvency trustees but we don’t know who they will be yet. They might be people who will have to apply for a licence, such as accountants but we will have to wait and see.”
Pat Farrell, the Irish Banking Federation’s chief executive, said banks were slowly recovering.
“We’ll continue to argue the case against it,” he said. “What we have to ensure in any set of proposals is that we don’t in someway adversely impact the capital positions of the banks. We’re far from out of the storm at the moment both locally and globally and we have to make sure that we keep people who are paying their mortgages incentivised.”
Cork North Central TD Jonathan O’Brien said said it was “essential” that the proposed insolvency service was independent.
“The level of debt that will qualify for a ‘debt relief certificate’ must also be carefully examined. It is high time that the state moved towards a more humane approach to bankruptcy and I would hope the government continue to work on this issue rather than leaving it on the long-finger like they have done up to now,” he said.
SIPTU economist Marie Sherlock questioned the wisdom of introducing a significant difference between the discharge periods for those that go through the judicial bankruptcy process (three years) compared to the non-judicial insolvency process (six to seven years) and called on the Government to clearly communicate its reasons for this distinction.
“The terms of discharge for a bankrupt through the non-judicial process appear to more onerous, with 50% of all preferential creditors to be paid, although this includes a possible extension of the repayment period out to 8 years,” she said.
“In many instances this seems likely to favour employers and owners of failed businesses while penalising ordinary home owners and workers. Social equity and public acceptance of the legislation requires a level playing pitch,” she said.
Credit card bills could be among the debts incurred.
What consumers can get from the new personal insolvency laws. (Names are not real.)
* John is unemployed, in receipt of social welfare or has seen his income severely reduced. He has little capacity to pay off his debts, which are less than €20,000, after paying rent and meeting his basic household needs. He lives in rented accommodation and has no assets to help pay debts.
Some of his unsecured debts include a bank overdraft for €5,000, a credit card bill for €5,000, a personal loan for €5,000 and a utilities bill for €1,000.
John can contact an approved intermediary such as Mabs and request help in applying for a debt relief certificate. Approval could affect his future access to credit and provision of utility and other services.
His application to an insolvency service will cost €90 and include a full disclosure of his means and debt.
Creditors cannot pursue John for a year for the debts owed under the certificate, after which he will be discharged from the amounts owed.
* Mary has unsecured or consumer debts which are over €20,000.
She has difficulty in repaying her debts in full, perhaps due to reduced income and pressure to maintain mortgage repayments. She can apply to an insolvency agency, through a trustee, for a debt settlement agreement. The majority of creditors on her debts must then approve the agreement, which would set out amounts to be repaid over five years. After that time, Mary’s debts would be repaid in full although there is room for a write off of some of them. The agreement can be reviewed if Mary’s situation changes.
* Alice has run out of options and with mounting debts has decided to seek bankruptcy in the courts. The terms after which she can be discharged from bankruptcy have been reduced from 12 to three years. Her debts exceed €20,000.
However, the term could be delayed by a court, by up to eight years, for reasons listed on the far left.
Alice must fully disclose all her assets. While she can escape punitive measures of bankruptcy after three years, she will be expected to pay her creditors for up to five years, while also having reasonable living expenses.
Debt relief certificate
Debt is forgiven for people with no assets and a monthly disposable income of €60 or less who face bills not exceeding €20,000.
This is a non-judicial agreement but affects a person’s credit rating. The debts can be written off after one year. Debtors can have assets of €400 or less or a vehicle worth €1,200 or less. This agreement covers unsecured debt such as credit card and personal loans.
* Debt settlement arrangement
This covers un-secured or consumer debt over €20,000 that can be repaid over a set period. The deal will normally run for five years and covers debt with two or more creditors, 65% of whom must agree to it. Once the agreement comes to an end, there is room for the remaining debt to be written off.
* Insolvency arrangement
Borrowers can write down their mortgage debt out of court without being declared bankrupt.
It will cover debts, both secured and unsecured, ranging from €20,000 to €3m. The arrangement will normally run for six years. An average of 65% of lenders must approve the terms with an independent trustee. Crucially, borrowers will be able to negotiate temporary insolvency involving a write down of some of their mortgage debt.
* Bankruptcy
The main change will see debtors emerging from punitive terms after three years, as opposed to the previous 12 under law.
Debts must be €20,000 or more. Discharge from bankruptcy can be delayed for up to eight years if the debtor is found to be fraudulent, non-compliant or dishonest. Lenders can take ownership of properties, even after the borrower has emerged from bankruptcy. Any windfall for debtors, such as inheritances or winnings during the term of bankruptcy, can also be claimed back by creditors.
— Juno McEnroe
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