IN 2009 NEARLY 90,000 people in Britain elected to bankrupt themselves. In the United States the figure was in excess of 1 million. And yet in Ireland, the county with the most heavily indebted citizenry in the western world, the figure was less than 10. Is it any wonder that we continue to remain stuck in a miasma of personal debt?
In Ireland, our adamant refusal to face up to reality is unprecedented and will continue to act as a drag on recovery. Thousands of people, who, if given a second chance, would be back at work creating jobs and wealth, are forced to live in a limbo land where every move they make is blocked by creditors. Those creditors must realise they will not be paid but still refuse to allow the natural cycle take its course.
The law changed earlier this year and there is now a viable bankruptcy option available to people. And for many there is no downside to bankruptcy. It is a simple process where debts are eliminated and the person can begin again. That new beginning marks a rebirth for the individual and offers great benefit for the economy and onward to society. It is a recognition and embrace of failure and if properly understood people can emerge from it stronger than before. It is no accident that in the United States many of their greatest visionaries faced personal bankruptcy at one stage in their lives.
So how does it work in Ireland? In order to qualify a person needs to meet three criteria. First your debt needs to exceed your liabilities by more than €20,000. Secondly, you must be insolvent, in the sense of not being able to pay all your debts as they fall due. And finally you must have made reasonable efforts, insofar as you can, to come to an arrangement with your creditors via an insolvency arrangement under the new Personal Insolvency Act.
Once you meet the criteria you are entitled to petition the High Court for your own bankruptcy, the effect of which is to eliminate all debt from whatever source it comes. You therefore emerge on the very moment of your bankruptcy debt free and able to start a new life unhindered by debt, however great.
In general people ask two questions of the process. First, what happens to my income? For most people there is no effect, in that if you have a job you continue to have a job. However if your income is such as to mean there is an excess available, the Official Assignee will require you to make payments to him for a maximum period of 5 years. Our experience is that excess income is only available to the few as most people do not have any excess having had regard to published reasonable expenditure guidelines – and if they do it is very limited.
Second, what happens to my family home? The view that you automatically lose your home in bankruptcy is false. Figures show that at least half of people previously bankrupted in Ireland have held on to homes and the Official Assignee has repeatedly stated that his preferred option is to allow people hold on to homes provided the mortgage is reasonable. Each case falls to be determined on its own facts and so taking good advice is important before making a decision to proceed.
Under our new system pensions are protected provided they are not accessible for 5 years post adjudication. The alchemy of bankruptcy happens on day one as you are immediately debt free and able to begin again. However, in most cases people will not be discharged from bankruptcy in Ireland until a period of three years have passed. During that time any windfall would be captured by the Official Assignee as an after acquired asset, and restrictions, such as that on being a director of a limited company, remain in place. After 3 years you are in the clear.
What about my future access to credit? People are concerned as to the effect bankruptcy has on their credit rating. The truth is that anybody considering bankruptcy is hardly likely to have a good credit rating as matters stand. History shows banks to have short term memories.
In a post-bankruptcy world the would-be borrower is debt free and will be seen as such. And the past is the past especially when that past was not of the individual’s creation – our personal debt crisis is a result of monumental failures of banks and regulators. In three years from now there will be a class of post Celtic tiger bankrupts emerging from the process and they will be seen as such.
Since 2008 people have struggled with debts that cannot and will not be repaid. Had we embraced a modern bankruptcy regime in 2009 the personal debt crisis would now be history and the economy and our society would be the beneficiary.
But as late is better than never, the time has come to stand up for ourselves and our futures, to remove the chains of debt from around our ankles, and to begin in earnest the march toward financial redemption.
Ross Maguire SC, New Beginning: www.newbeginning.ie
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