THE ESTABLISHMENT of a debt enforcement office, the regulation of debt-collecting bodies and the ending of imprisonment for debt are among the proposals from the Law Reform Commission on dealing with personal debt.
The commission will launch its 440-page report at its annual conference today which will be opened by Mr Justice Brian McGovern and addressed by a number of people working in the area of debt management and enforcement.
It follows the publication of a consultation paper last year and an interim report in May of this year, containing a number of specific proposals, some of which were already being acted upon.
The focus of today’s report is on reform of the law on personal insolvency and debt enforcement procedures. The report does not deal with mortgage debt, pointing out that this was the subject of a report from the Mortgage Arrears and Personal Debt Review Group last November.
Instead it mainly deals with unsecured personal debt, though it points out that once a mortgage debt has crystallised through enforcement proceedings for default, any outstanding debt becomes unsecured debt. The report is accompanied by a Draft Personal Insolvency Bill.
The report says international research has shown the main cause of over-indebtedness is a change in a household’s income. “Rises in unemployment and falls in average income in Ireland in recent years have therefore led to the development of economic conditions that have contributed to rising levels of over-indebtedness,” it states.
It proposes the setting up of a non-judicial debt settlement regime, through a debt enforcement office. This would oversee non-judicial debt settlement arrangements between creditors and debtors in the most efficient and cost-effective manner possible. Under the proposals an individual’s debts would be treated in a holistic manner, with all financial information brought into the process of debt resolution.
The report does not propose a monetary ceiling on the value of the debts that would be dealt with by the new office, but anticipates that very large or complex debts would still go to the courts through the bankruptcy laws.
These should be reformed to permit a discharge from bankruptcy after three years and increase from €1,900 to €50,000 the minimum debt level required to bring a bankruptcy petition.
The debt enforcement office would include a debt settlement office, which would oversee and license personal insolvency trustees. They would help negotiate a debt settlement arrangement between the creditor and debtor. This would be a binding arrangement whereby the debtor would repay an agreed amount over a period of up to five years.
After that the person would be able to make a fresh start.
The debt enforcement office would also be empowered to make a once-off debt relief order, which would recognise the reality of the inability of the debtor to pay in the foreseeable future. It would be able to make attachment of earnings orders and orders for repayments to be deducted from a debtor’s bank account, while ensuring that there was still a minimum standard of living for the debtor and his or her dependants.
Referring to the debts of those who can, but won’t, pay, the commission states that the appropriate sanction is a community service order rather than imprisonment. It also proposes a regulatory regime for money advice and debt collection agencies.
Law reform commission: main points
- Enactment of a Personal Insolvency Bill to reform the system of debt management and enforcement.
- Setting up of Debt Enforcement Office (DEO) to arrange settlement of debt outside of the courts.
- Total ending of imprisonment for debt, with community service orders used instead as the sanction for refusal to pay.
- Setting up of a Debt Settlement Office, which would license and oversee Personal Insolvency Trustees, under the DEO.
- Introduction of binding Debt Settlement Arrangements, where debtor pays regular amount
- for up to five years, after which he or she would be debt-free.
- Introduction of once-off Debt Relief Orders, which would recognise inability of debtor to pay.
- Extension of the power to make attachment of earnings orders and orders for deductions from bank accounts to the DEO.
- Introduction of regulatory regime for money advice and debt-collecting bodies.