Minister left to ponder ‘Kilborn ultimatum’ on debt

You could call it the Kilborn Ultimatum: Reform the personal insolvency and bankruptcy laws of this country or watch the can we’ve been kicking down the road get run over by a truck.

As Social Protection Minister Joan Burton listened intently to a representation made at yesterday’s Flac conference by Chicago-based professor, Jason Kilborn, it was hard to escape the feeling that she might have felt mildly chastised on behalf of the Government.

The Coalition has decided to tackle our debt and insolvency laws that have, possibly, exacerbated the trauma felt by many who have been dragged under by the recession.

In her address to the conference, the minister admitted that current laws meant the existing 12 year discharge period was effectively a life sentence.

The heads of the Personal Insolvency Bill have outlined some of the plans to change this. The response from some of the speakers at yesterday’s event, however, was not exactly effusive.

Mr Kilborn, who teaches at the John Marshall Law School and who chairs a drafting group for a World Bank project on insolvency, got straight to the point.

Referring to parts of the proposed scheme that would see the introductions of personal insolvency agreements or PIAs, he quipped that these were “DOA”. Likewise debt settlement arrangements, or DSAs, as both face possible powers of veto by one major creditor operating in the short-term world of bank balance sheets.

He argued that the Irish plan mirrors that which operate in England and Wales, whereas we would be better off looking at examples from the US and the EU, particularly France and Denmark.

Therefore, the cries of moral hazard, particularly regarding mortgage debt, is “an unreal fantasy”. One of his arguments was to liken insolvency relief to car insurance: Everyone needs to insure their car to get on the road, and just because your neighbour crashes his into a tree does not necessarily mean you’re being punished for it. After all, the same thing could happen to you next week.

He stressed that egregious credit abusers would need to be kept out of the system and there was a need for a trusted, independent broker to help facilitate negotiated settlements between debtor and creditor.

In France, the Banque de France does this. Mr Kilborn said it was what the Dutch call “the stick behind the door”. The wielding of this stick had meant acceptance rates of up to 65%.

While he afterwards said that “something is better than what we have now”, he described the central planks of the bill as “a series of half-measures” and wondered whether “the cure may be worse than the disease”.

As Ms Burton departed, she might have wondered whether her colleagues in justice and finance would be better off heeding Mr Kilborn’s words.