Call for more legal protection for debtors

THE MASTER of the High Court has called for the law to be updated to protect people unable to pay their debts and to introduce a level of “debt forgiveness”.

Master Edmund Honohan strongly criticised banks and other creditors for pursuing “to the bitter end” debtors who simply cannot pay, with the objective of writing off debts to achieve a tax benefit.

Such meaningless “accountancy exercises” were causing social disquiet and driving some people to suicide, he said.

There was no reason why the 1850 Judgment Mortgage Act should not be changed to “put a brake” on the spiralling number of judgments, he said. This would be a way of introducing debt forgiveness.

“Why should there be an incentive to cause untold harm socially when there is no money at the end of the road?”

He stressed that existing laws provided a measure of protection for debtors in difficult situations and warned that banks should not expect to have it all their own way when pursuing debtors.

“We know which banks were the cheerleaders for the tiger,” he said.

“Yet some banks are reverting to type and come to court assuming that the banker always wins anyway. That’s not how the law sees it.

“If we drill down and find clear evidence that any transaction was in reality a sort of joint venture with the bank, the law will insist that both parties share the losses,” he said.

Most of the debt cases arose due to circumstances beyond the control of the borrowers, namely because the economy shut down as a result of the banking collapse, he added.

While debtors may think they are “outlaws in uncharted territory”, even members of the “new debt set” have legal rights, he said.

It was a criminal offence to demand repayment so frequently as to cause alarm, distress or humiliation; to tell a debtor they are guilty of criminal offence; and to pretend to be officially authorised by law to enforce payment. Unjustified enrichment of creditors was also prohibited under law.

The Master, who deals with a range of legal matters including applications to register and enforce judgments, made the remarks yesterday when dealing with several such cases.

He noted that no laws had been introduced to implement recommendations by the Law Reform Commission in a 2004 report relating to debt relief, which included that a family home should not be sold on foot of a judgment mortgage unless such order was approved by a court.

The commission also recommended that a judgment creditor who registered a judgment mortgage over any other type of property would have to apply to court for the sale of the property.

It also suggested the courts should consider a range of matters when dealing with an application for sale of the family home of a judgment debtor, including the financial means of the judgment creditor and of the non-debtor owner and their family residing in the property.

If there was not going to be “prompt” legislation updating the 1988 Bankruptcy Act, the 1840 Judgment Mortgage Act and the 1850 Debtors Ireland Act, or the introduction of the proposed non-judicial debt resolution process, other stopgap measures should be considered, Mr Honohan said.

He also urged that full legal effect be given to the EU Consumer Credit Directive of 2008, and that provisions protecting consumers be extended to personal guarantors of non-consumer credit.

Guarantors who found themselves in court as “innocent victims of collateral damage” deserved “appropriate leniency”, particularly if the principal debt was already written off by the creditor, he said.