Give me a crash course in . . . the personal insolvency Bill

 

Our clever Government has found a way we can all get out of debt, right?Er, no, not exactly. It has published the heads of a new personal-insolvency Bill aimed at helping people “enslaved” – to use Minister for Justice Alan Shatter’s word – by debt to break free.

Sounds great. What will it do?Allow some people with debts they cannot possibly repay to have them written off or renegotiated so that they can get on with the rest of their lives.

How will it work?It depends on who you are, what you owe and what your chances of repaying your debts are. But first things first: the Bill proposes the establishment of an insolvency service that will help people manage debt. It also cuts the bankruptcy period from 12 to three years and allows for three voluntary debt-settlement systems to operate outside of formal court insolvency.

Three strands?Sounds complicated It is complex but rather clever. First up is a debt-relief certification process. This will allow people who owe up to €20,000 in unsecured loans, such as credit-card debt, to apply for a certificate that will see all their debt frozen for a year and then written off.

I owe €7,000 on my credit card. Can I just get one of these certs?No. You will need to be on your uppers. You can have assets amounting to no more than €400, a car valued at less than €1,200 and disposable income when all essentials are taken into account of less than €60 a month. A second strand covers unsecured debt of more than €20,000. You enter five-year arrangements to pay off “an amount” of loans, to be worked out with the help of a personal-insolvency trustee who will assess your finances and work up repayment arrangements to bring to your creditors.

Will this help with my mortgage?No, but a third strand, called a personal-insolvency agreement, might. Let’s say you’ve a mortgage of €500,000 on a house worth just €300,000 and can afford to pay only a maximum mortgage of €400,000. Your personal-insolvency trustee might propose a debt reduction of €100,000.

And the lender has to accept this?No, all the measures are voluntary.

That’s ridiculous: the banks will just say noThey can, but they would be stupid to do so. As the Minister said, it will be in their best interests to reach agreements with those with mortgages they can no longer afford. If the bankruptcy option is pursued, a debtor will be bankrupt for only three years, after which they are free of all debt. They can have “a fresh start”, but the banks will be left with a home they can’t sell and no way of recouping their other losses.

How have the banks responded?They hate the plan.