Relief on personal debt
IT IS almost two years since the Law Reform Commission recommended reform of the bankruptcy laws and a reduction of the 12-year discharge period to six years or less. It also suggested that, where possible, debt resolution issues should be dealt with outside the courts. Delay in introducing the legislation reflected the degree of exposure by financial institutions to non-performing mortgages and concerns that too liberal an approach to large-scale indebtedness could increase Government and taxpayer liability.
The terms of the Personal Insolvency Bill, involving non-judicial debt resolution and revised bankruptcy laws, have received a broad welcome from consumer groups. In situations where the customer is clearly unable to pay, it provides for sums amounting to €20,000 to be written off over a three-year supervision period. In cases of mortgage failure it sets a ceiling of €3 million for the agreed settlement of secured debt with financial institutions over six-years. That provision will cover the vast bulk of home mortgages taken out during the property bubble years and it represented a rebuff for those banks that urged a lower ceiling of €1 million. In future, bankrupts will be discharged after three years. That penalty is more onerous than the 12 months that currently applies in Britain but it represents a considerable advance on the last-century restrictions that existed here.
The present and previous governments, along with Financial Regulator Matthew Elderfield, consistently ruled out debt-forgiveness on the grounds that it would encourage some homeowners to breach their financial obligations. A distinction was also made by the Law Reform Commission between the treatment of those who can’t pay and those who won’t pay. As a consequence, debt-forbearance schemes are favoured as a means of keeping families in their homes. In that regard, the most useful advice for homeowners with mortgage difficulties is for them to immediately seek a revision of existing contracts.
How beneficial the insolvency legislation will be for consumers will depend to a large extent on the responses by financial institutions. The coming weeks should provide greater clarity as lenders introduce a range of new products in response to the legislation. If past performance is any guide, however, further pressure will be needed to ensure a fair deal for consumers. Banks that provided mortgages in excess of 100 per cent in the past should bear some responsibility for an outrageous lending practice.
Irish people are among the most heavily indebted in the world and are still bewildered by the speed of the economic collapse and its grave impact on their personal finances. This legislation will provide some families with a lifeline. But others are destined to lose their homes. Questions have been raised about the need to involve the Circuit Court in the insolvency process and about the lack of an appeals system. These matters should be teased out when the Bill comes before the Dáil in the autumn.