ANALYSIS:Legislation to speed up resolution of personal debt problem has been slow in coming
THE PASSAGE of the Personal Insolvency Bill into law reached another milestone yesterday, with the announcement that Cabinet had approved the Bill.
The troika had urged the Government to deal with the bankruptcy and mortgage arrears problem. Its response is the Personal Insolvency Bill – complex, 200-page legislation which proposes a radical overhaul of the personal insolvency and bankruptcy regime.
The Bill was originally intended to be published in March, then in April, but was finally postponed until June. The Bill will be published on Friday, debated in the Dáil until the summer break, and will not become law before the autumn, though it is likely to be the new year before it will be up and working in practice.
The Bill contains two broad elements – a reform of the bankruptcy regime, and proposals for voluntary debt settlement agreements which will allow people with unsustainable mortgage and other personal debt to have some of it written off without having to go through the court process. Critically, banks will have the power to veto any deal. This has been criticised by Opposition parties and consumer groups, but the Government argues it will be in the interests of banks to come to arrangements with struggling mortgage holders.
With bankruptcy reduced from 12 years to three, struggling mortgage holders could be free of their debts within three years, leaving the banks with nothing.
Alternatively, if a bank repossesses a heavily indebted house, they are likely to face a situation where they cannot sell it at a sustainable level.
While tens of thousands could benefit, it is likely to involve an onerous administrative process, and participants will be subject to very strict financial criteria.
The key proposals are:
* people declared bankrupt will emerge from bankruptcy, free of their debts, in three years, rather than 12 years as has been the case;
* the establishment of a State-run insolvency service to oversee new debt-payment arrangements. Personal insolvency trustees will be employed to oversee this.
Three systems will deal with different kinds of debt:
* for unsecured debt of up to €20,000 such as credit-card debt, people will be issued with a debt relief certificate, which will see all their debt frozen for a year and then written off;
* for unsecured debt of more than €20,000 a debt settlement arrangement is being proposed. The debtor enters multi-year arrangements to pay off a certain amount of their loans;
* a personal insolvency agreement, primarily aimed at mortgage debt, which applies to loans of up to €3 million. This will run for six years.
