Banks have to accept unpaid debt, says Shatter

Minister for Justice Alan Shatter has warned banks and their public interest directors they will have to accept when a debt cannot be repaid, under new personal insolvency legislation.

He told the Dáil he would amend the Act if necessary to ensure this after Independent TD Stephen Donnelly claimed Permanent TSB public interest director Ray MacSharry had told an Oireachtas committee yesterday there would be “no debt forgiveness”.

The Wicklow TD said Mr MacSharry’s comments were backed up by Bank of Ireland boss Richie Boucher on Tuesday. “Essentially he said his bank would not engage with this legislation, stating, ‘we are absolutely not going to engage in surrender of debt’.”

He was commenting after the Dáil passed all stages of the Personal Insolvency Bill, which now goes to the President for signature and is expected to come into effect in the first three months of next year. The radical legislation reduces the period of insolvency from 12 to three years and allows debts of up to €3 million be written off.

Mr Donnelly had expressed concern about an amendment to the legislation which he said could “neuter” the Bill and extend three years of insolvency.

It refers to a creditor being able to apply for an extra five years of payments after the three-year bankruptcy period. “By stating the period in question can be no longer than eight years, the amendment confirms that this period could last up to eight years.”

Borrower’s bankruptcy

Mr Donnelly said “in the last week of the borrower’s bankruptcy, the bank can apply to the court for a payment order and can essentially keep taking money from him or her for another five years”. He believed the banks in negotiations with debtors could “claim the period is not three years but eight”.

He said the real power of the legislation was in “how it plays out at the negotiating table”.

Mr Shatter said, however, that banks had a duty to try to recoup debt owing to them. “They also have an obligation to recognise a debt which is not recoverable, and not maintain a pretence that some part of a debt which cannot be recovered is recoverable.”

The Bill provided for this “and I hope we do not find ourselves back here too soon having to amend it. However, I have no doubt all of us, in Government and in Opposition, will be watching very carefully how legislation works in the early months of its operation.”

The Minister said he did not hear Mr MacSharry’s remarks but was of the view that if a public interest director of a financial institution publicly or privately states that “in no circumstances will anyone will be afforded the possibility of a capital write off . . . that individual is not acting in the public interest, never mind the private interest of the debtor”.

The legislation allows for the retention of personal jewellery of sentimental value up to a maximum of €750. The Minister also increased the allowable value for the vehicle a debtor in insolvency may keep to €2,000.