UP TO 30,000 homeowners could benefit following the publication of proposed legislation which will make it easier for banks to be compelled to offer debt forgiveness to people with unsustainable mortgages.
Tens of thousands of others who have amassed large unsecured and unaffordable personal debt will also be able to use measures contained in a Personal Insolvency Bill to lessen their debt burden or lift it entirely.
The new Bill, announced by Minister for Justice, Alan Shatter, and Minister for Finance, Michael Noonan, yesterday, proposes the appointment of a State-run insolvency service to help people manage their debt and it cuts the bankruptcy period from 12 to three years. It also introduces voluntary debt settlement systems to help people sort out their finances outside of formal court insolvency.
The three strands of the voluntary system will see the introduction of debt relief certification, which will allow people who owe up to €20,000 in unsecured loans, such as credit card debt, and who meet certain criteria, apply for a debt b relief certificate. If granted, their debt will be frozen for a year, after which it will written off if their financial circumstances have not changed.
A second strand, also covering unsecured debt of more than €20,000, will allow debtors enter into five-year debt settlement arrangements which will enable them to pay off “an amount” of their loans, the amount to be worked out with the help of a personal insolvency trustee.
The third strand, called a personal insolvency agreement, covers both unsecured and secured debt, typically mortgage debt. It will have major implications for many thousands of distressed homeowners who are burdened with unsustainable mortgages and will also have a knock-on effect on lenders’ mortgage books.
A personal insolvency agreement (PIA) will cover both unsecured and secured debt, starting at €20,001 and with a ceiling of €3 million. Someone will only be able to apply for a PIA once in their lifetime and only then if they can prove they are unable to pay their debts as they fall due and if it is unforeseeable that they are likely to become solvent. A PIA will run for six years and will see a trustee propose a deal to creditors and then oversee the repayment plan for the duration.
While the banks cannot be compelled under the proposed legislation to write off mortgage debt, Mr Shatter said, it would be in their best interests to reach agreements with those with mortgages they can no longer afford.
This would inevitably see foreclosures on family homes and leave banks left holding houses they would not be able to sell. Bankruptcy will also be less arduous for individuals as, under the Bill, they will be allowed to emerge from it after three years rather than the current 12.
The changes mean that former Anglo Irish Bank chairman Seán FitzPatrick and businessman Seán Quinn could emerge from bankruptcy much earlier than under the previous regime as the new legislation would apply to individuals who have already been declared bankrupt.
Mr FitzPatrick could walk away from his debts as early as July 2013, while Mr Quinn could be discharged as a bankrupt in January 2015. The former Anglo chief filed for bankruptcy in July 2010 with debts of €148 million and assets of €51 million, while Mr Quinn was declared bankrupt earlier this month on the back of court-imposed debts of more than €2 billion due to the State-owned bank and assets of just £50,000 sterling.
The general scheme of the Bill will be furnished to the Joint Oireachtas Committee for Justice, Defence and Equality for its consideration, with a response sought by March 1st.
The Bill is to be published in full by April 30th – in line with the revised commitment in the EU-IMF programme of financial support. This will be followed by a second-stage debate in the Dáil but passage of the legislation may take some time.