The proposed legislation allowing for debt forgiveness for people with unsustainable mortgages was the most radical reform of personal insolvency to date, Tánaiste Eamon Gilmore has said.

“For the first time we will now have legislation that will enable borrowers to negotiate debt settlement arrangements on a realistic and reasonable way with their banks and financial institutions,’’ he added.

He told the Dáil today that the proposed legislation, published yesterday, would strengthen the hands of borrowers.

Mr Gilmore said the biggest worry that families and individuals had was the losing their home, adding that the issue had now been addressed by the Government.

Fianna Fáil deputy leader Eamon Ó Cuív described the measure as “light touch legislation’’. It lacked teeth, he said, particularly relating to secure creditors and home loans.

Up to 30,000 homeowners could benefit following the publication of proposed legislation that 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.