The Law Reform Commission's consultation paper on debt shows that over-indebtedness is caused by a number of causes, writes CAROL COULTER
THE COURT statistics speak for themselves. In the High Court there were 1,601 execution orders (for debt) last year, compared with 1,208 the previous year; default judgments were up from 881 to 1,186; judgment mortgage affidavits rose from 471 to 643; registered High Court judgments from 296 to 419. There were similar increases in the Circuit Court.
The Law Reform Commission points out in its Consultation Paper on Personal Debt and Debt Enforcement that household debt as a percentage of disposable income increased from 48 per cent in 1995 to approximately 176 per cent in 2009, placing Ireland fourth among developed countries in debt ratio. Much, but not all, of this is accounted for by mortgages, with credit card debt also making up a significant proportion of household debt.
Over-indebtedness, which is an international problem, has been defined as where the borrowing commitments of a debtor cannot be satisfied from the debtor’s income within a reasonable time.
This can arise from a number of causes, starting with irresponsible lending by institutions which do not check the ability of the borrower to repay the loan, and irresponsible borrowing by those who borrow without having a prospect of easily and quickly repaying the loan.
However, the commission notes that indebtedness is most prevalent among people with inadequate incomes, and is concentrated among families with young children, of whom the most prone to financial problems are single parents. A sudden change in circumstances, through job loss or illness, can precipitate a household into over-indebtedness, and this is the most common cause of arrears.
“The over-indebted debtor poses particular problems for the law of debt enforcement,” the consultation paper states.
“As such debtors simply lack the means to repay monies owed, traditional enforcement mechanisms are wasted if applied to such debtors.”
It also points out that as enforcement proceedings are brought by one creditor to recover one debt, they fail to deal with the over-indebtedness of the debtor, who typically owes money to a number of people or bodies.
Among low-income households, for example, one of the main sources of debt is the running up of arrears of utility bills, with one survey showing this to account for up to 40 per cent of the debt of women living on social welfare payments.
Over-indebtedness has a detrimental impact on society as well as the households involved, as individuals suffer from both mental and physical health problems and the family can end up homeless and costing society more in health costs and welfare expenditure, it points out.
The commission, therefore, is putting forward a number of far-reaching measures to replace the present system for debt enforcement, with its emphasis on coercion, including imprisonment.
The commission stresses that there must be a distinction made in the law between those who won’t pay and those who cannot pay.
In dealing with the latter, who make up the vast majority of debtors, it recommends a comprehensive set of measures to reduce the number getting into excessive debt in the first place; to assist them in dealing with their debt in a non-punitive and, as far as possible, non-judicial manner; putting in place a system that will ensure the debt, or as much of it as possible, is paid.
Those who “can’t pay” should be taken out of the court system, freeing it up for those who “won’t pay”, according to the commission.
Even with this group, there are different categories, ranging from the disorganised to those who seek to avoid paying their debts.