Bankruptcy laws - Change can cut numbers defaulting

The Personal Insolvency Bill unveiled yesterday by Finance Minister Michael Noonan and Minister for Justice Alan Shatter is designed to reform the country’s outdated bankruptcy laws.

The new bill is welcome, because the existing system was being undermined by the perception that some high-profile business people were being allowed to walk away from their debts by simply leaving the jurisdiction and filing for bankruptcy under a more lenient system abroad.

In welcoming the new legislation, one specialist noted that it could sound the death knell for what he termed “bankruptcy tourism”. The proposed legislation, which reforms the Bankruptcy Act of 1988, is complex, but it has received a guarded welcome from the free legal advisers, FLAC, and the legal advocacy group New Beginning.

Some of the bill’s details will still have to be teased out in Oireachtas hearings in the coming months. The need for the legislation was foreshadowed last October in a report of the Government’s Economic Management Council, headed by accountant Declan Keane.

The Keane report was commissioned to help those people in severe mortgage difficulties to keep a roof over their heads. It ruled out the simplistic idea of debt forgiveness, because the country could not afford it.

The report recognised that some people would lose their homes, but it challenged the Government to minimise this. Those in danger of defaulting because of financial difficulties should be assisted by restructuring their mortgage repayments, if this would allow them to discharge obligations.

The ideal of the non-judicial settlement system is a very different approach from the current practice. While it is likely to be welcomed by debtors, because of its reduced costs and is non-confrontational approach, it is still not clear how the banks and lending institutions will react.

The legislation is designed as a rebalancing of the playing field between borrowers and lenders. Thousands of struggling homeowners with unmanageable mortgages can apply for a personal insolvency arrangement. This would be an out-of-court agreement that would allow them to restructure their repayment, subject to the approval of the lender.

Bankruptcy should never be confused with economic recovery, but society can recover faster the sooner we close the books on bad debts.