New bankruptcy law ‘single most positive thing’ for debtors

Legislation before Cabinet on Tuesday to reduce the term of bankruptcy to one year would be "the single most positive thing" the Government has done for people in debt, according to the Irish Mortgage Holders Organisation (IMHO).

A Government source on Monday night said it was expected the Bill by Labour TD Willie Penrose would be "broadly accepted" by the Cabinet, although there will be "some minor amendments" by the Government on "mainly technical issues".

In the bill, the discharge term for bankruptcy is reduced from three years to one year. Individuals who have been bankrupt for more than one year prior to the legislation’s enactment would be discharged after three months, although it is understood a Government amendment will increase this period to six months.

Mr Penrose’s Bill also includes a provision to reduce the window in which income payment orders apply from five to three years. Income payment orders refer to when bankrupt individuals are pursued for the surplus of their income considered in excess of reasonable living expenses.

Daunting

In the event of a bankrupt individual’s family home being seized, Mr Penrose’s Bill allows three years for the property to be sold or it must be returned.

IMHO chief executive David Hall said the period for income payment orders should be limited to two years. He also dismissed criticism that the proposal could make bankruptcy seem like an attractive option for debtors.

“Those people have no clue how the process works,” he said. “They don’t have a clue that going bankrupt is a daunting prospect for anyone – subjecting yourself to having the knives and forks in your house counted by a third party to establish what asset value you have in your house.

“They’re waffling and talking about utter nonsense in relation to moral hazard and stuff.”

Mr Hall added the issue would not resolve the homelessness crisis. “It will help but it will mostly certainly not be a panacea to save people from homelessness,” he said. “There are other restructurings that need to be put in place around the entire insolvency legislation, which is a completely unworkable piece of legislation that needs urgent review.”

The Irish Banking Federation did not return a request for comment, but the Oireachtas Joint Committee on Finance, Public Expenditure and Reform held a series of meetings with senior banking executives in April and May during which they were asked for their views on the matter.

All of the executives told the committee they had no difficulty with a reduction in the bankruptcy term, but a number of them argued that bankruptcy changes would have little or no effect in terms of accelerating the mortgage arrears resolution process. Instead, they argued, greater priority should be given to streamlining existing insolvency processes.

AIB chief executive David Duffy said it would not make a "material difference" to the mortgage market and that there "seems to have been some misunderstanding about bankruptcy".

Duration

Ulster Bank

chief executive

Jim Brown

said the duration of the bankruptcy period was “irrelevant” and that engagement was “the only mechanism” to resolve arrears cases. Asked if he had any general concerns about reducing the term, Mr Brown said: “Not really.”

PTSB asset management unit managing director Shane O' Sullivan said the issues of insolvency and bankruptcy were "to some degree becoming conflated". He had "no particular issue" with reducing the period, but added it was "not about keeping a roof over one's head".

A spokesman for the Government said the objective was to enact the legislation by the end of the year. “This would bring Ireland into line with Northern Ireland and the UK, and assist in putting to an end the practice of Irish people engaging in bankruptcy tourism and circumventing Irish law,” he said.