The personal insolvency system is working – the critics are wrong
Opinion: While in the UK hundreds of thousands of insolvency deals are processed every year, here we are condemned to endless debate and consequent inertia
‘We are now seven years into the crisis of personal debt, a crisis that has very real effects on the wellbeing of a large part of our population.’ Photograph: Getty Images
The Oireachtas Finance Committee, editorials of national newspapers and an array of commentators and self-styled experts have been repeating a bald assertion that the new personal insolvency regime is unfit for purpose and should be reviewed. But what should really be reviewed is the bona fides of those calling for the review and the intelligence of their assertions. For they claim the system is bound to fail without taking time to understand how it works.
They assert the so-called “bank veto” means the regime is heavily weighted in favour of banks and creditors. This is reference to the fact that any deal must have the agreement of creditors representing at least 65 per cent of the total debt. Apart from the fact that more than 75 per cent of deals are already being accepted, with that figure likely to climb to well over 90 per cent, what exactly do the critics suggest should happen? Are they seriously arguing the system should be able to force debt write-down on creditors without agreement? Hardly. So why call for review? Sadly, the answer is more about air-time and headlines than public service.
The consequence of the misinformation peddled by the critics of the personal insolvency regime is that people who could be helped are confused and doubt the system. In being outside the protection of personal insolvency and bankruptcy those same people are prey to banks, whose only priority is to their balance sheets. And while in the UK, and elsewhere, hundreds of thousands of insolvency deals are processed every year, here we are condemned to endless, and often mindless debate and consequent inertia.
Personal insolvency is a process that takes a person as they are; that brings all the creditors to the table; and that thrashes out a deal, making the borrower solvent again while, if at all possible, retaining the family home. It is as simple as that. The arrangement is a deal between the parties, brokered by an independent third party. The deal must be completed within a defined period of time, though it can be immediate, and it cannot allow the borrower to live below an income level determined by the Insolvency Service of Ireland.
There are all sorts of protections built into the system to safeguard borrowers and to ensure that creditors get the full picture. And it goes further. For if the banks exercise their so-called veto, the borrower is entitled to avail of bankruptcy, meaning all debt is written off instantaneously without the need for consent from the creditors – in fact creditors only hear of bankruptcy after the event.
Debate can be a good thing, but the debate surrounding personal insolvency, coming as it does in the main from uninformed and agenda-driven sources, is not serving the public interest. It serves only to create a hesitation where there should be none. We are now seven years into the crisis of personal debt, a crisis that has very real effects on the wellbeing of a large part of our population.
The low uptake in the system can be attributed, in part, to a natural wait-and- see position being adopted by some. But the endless negativity from the attention-seeking critics and every misinformed and hyperbolic statement serve only to prolong the agony. On the other hand the crisis will be solved by accountants and insolvency practitioners and by the quiet tenacity of families all over this country – the kind of stuff that never makes the headlines.
Debt is the overhang of the Celtic Tiger, a beast that is well and truly dead. Death is followed by burial after which we must begin again. But we have not buried the long dead Celtic Tiger and are allowing its stench to contaminate our future.
Bankruptcy and personal insolvency bury debt and allow people to move on with their lives. The system is not perfect, but it does represent a fair balance between competing interests. Most importantly, and at its very core, it provides the freedom and ability to rebuild a new life, free from past mistakes. By giving people this freedom we will unleash a new energy in our country, out of which our collective future will be built.
The alternative is to live with and in the past and to be contaminated by it, all the while having to listen to the noisy whinge of the naysayers and headline grabbers.
Ross Maguire SC is Co-Founder of New Beginning, which authorised by the Central Bank to provide debt management services and solutions