Personal insolvency - Serious implications to new rules

A provision of the new personal insolvency arrangements, due to come into effect at the beginning of next week, will effectively allow banks 20 years to claw back mortgage debts written off under certain circumstances.

Initially it was suggested that borrowers availing of the arrangements would emerge with a clean sheet after three years, but this was then extended to six years. Now we learn that it is effectively extended to 20 years. This should really not have been a surprise to anyone because, although it was buried deep in the somewhat convoluted wording of the legislation, it was part of the bill since first drafted.

Under Section 103 of the arrangements, the debtor could be required to repay the written-off debt at any time up to 20 years, if the property was sold for more than the price paid under the personal insolvency arrangements. The legislation — drawn up in consultation with representatives from different interest groups, including the troika, Free Legal Advice Centres, the Money Advice and Budgeting Service, and the banks — has been described as a compromise between the various interests, with give and take on all sides.