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ON TUESDAY MARCH 6, the Joint Oireachtas Committee on Justice, Defence and Equality launched its report on the recently proposed draft Bill on personal insolvency and debt settlement.
The report, which went to the Minister for Justice, Alan Shatter TD, followed on a novel approach to discussing legislation where, in mid-January, Minister Shatter sent an outline of the Personal Insolvency Scheme to the Committee for their comments, thus allowing the committee – composed of TDs and Senators from all political parties as well as independents – to look at the plan proposed in this radical and far reaching piece of law before the text of the bill was settled. It was very useful to be able to do this – to concentrate on the thinking behind the bill rather than picking at a text.
In all, the Committee received 10 written submissions and invited seven groups to make oral presentations. In addition to hearing from Free Legal Advice Centres (FLAC), the Committee also heard presentations from the Department for Social Protection, MABS, the Irish Banking Federation, New Beginning, the Irish Society of Insolvency Practitioners and askaboutmoney.ie. Inevitably, these put forward a wide range of views. However, having considered the presentations and reviewed its own materials, the Joint Oireachtas Committee seems to have come to some broad, general conclusions in its report to the Minister.
While it contains few firm recommendations, one of the report’s proposals is that there must be a “holistic” approach to debt settlement that encompasses secured and non-secured debt. The Banking Federation, amongst others, had suggested that secured debt, such as mortgages, be excluded.
The Committee’s report firmly points the Minister towards affording protection for people’s family homes; it also recognises the widely held concern that the scheme as presented does not contain an appeal mechanism and therefore, less asset-rich debtors could be particularly disadvantaged by intractable creditors. As the report puts it, “there was broad agreement that it is essential that there be a binding consequence for a creditor who acts in an unreasonable manner”.
The report will also flag for Minister Shatter the difficulties with some of the thresholds and time limits initially suggested in the draft scheme of legislation. It points out that there is a Europe-wide bankruptcy regime and, in particular, that the UK, our nearest neighbour, has the potential to release a person from bankruptcy after a year. The committee warns that that Ireland’s laws need to take that into account.
Particularly, it is concerned that under the proposed scheme, while a bankruptcy can last for three years , there could be a further five-year clawback period, and recommends that this be reduced substantially. It also wants the Minister to examine the issues around bankruptcy tourism and the thresholds at which people could qualify for various reliefs.
We very much welcome both the thoughtful approach of the Joint Oireachtas Committee to this important piece of law reform, and also that many of FLAC’s particular concerns have been addressed in the Committee’s report. FLAC had raised the lack of any appeal mechanism, the need to license those administering the scheme and the necessity of ensuring that the crucial role played by MABS over many years is properly factored into any scheme of debt settlement.
We had also underlined the importance of securing a minimum protected income for those who enter into debt relief schemes, which was also flagged by the Committee. Above all, FLAC has been adamant that it is futile to separate out people’s mortgage debt from their other debts. Recent statistics showing a continued rise in serious mortgage arrears make the need for proper legislation all the more acute, given the thousands of households seeking an effective course of action where currently none is possible.
The Justice Committee’s clear recommendation that the government must take a holistic approach to debt is a significant political endorsement by the representatives of the Irish people for an inclusive, comprehensive approach to the problem. Clearly much more work has to be done to tease out the details, and to this end FLAC has submitted a longer, more detailed piece of analysis on the draft Bill. However it seems at this stage that the Committee’s report has been able to identify common areas of concern drawn from a wide variety of interests. It is to be hoped that the Minister will be able to take this on board and legislate well in the public interest.
Noeline Blackwell is Director General of FLAC (Free Legal Advice Centres), an independent non-governmental organisation that campaigns for equal access to justice. FLAC has worked for a number of years on the reform of the law of personal debt, which is documented at flac.ie.
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Absolutely agree that mortgage debt has to be included in some part of the scheme to make it work properly though probably not feasible to protect a home in an ultimate bankrupcy. The best outcome for everyone will be a scheme that is short of bankrupcy but binds all creditors and the debtor to a scheme of repayment with Debt write off. The stick to make this work will have to be ultimate bankrupcy where the creditors (and probably the Debtor)end up worse off than entering into a binding scheme of arrangement. Also agree that there has to be a minimum income but how do you set it. Certian Credit Card companys have calculations which bear no realationship to reality.
Negative equality does not matter so long as repayments are made, assuming a 35yr mortgage for a house that was not bought as an investment.
I dont understand why it is an issue, and anyone taking a mortgage knows that property prices can drop as well as rise, but over the lifetime of the mortgage are most likely to increase due to inflation.
I have little sympathy for the property ladder people hoping to make easy money from speculation on a housing market. Sensible borrowers living in the houses they wanted have nothing to fear from negative equity.
Writing off peoples debts can only be a runner if those who were sensible enough not to borrow get compensated / and or it is funded by specific taxes targeted at those receiving support. With restrictions on their future financial transaction.
Might sound tough but there is a burden of responsibility that those who borrowed recklessly also have to bear…….and those who were sensible should not be called on the bail them out. Otherwise we are rewarding bad planning, consideration, and reckless borrowing.
“Sensible borrowers living in the houses they wanted have nothing to fear from negative equity.”
I think you’re missing the point here. When a single-property homeowner can no longer service their mortgage due to unemployment or reduced wages, negative equity means that they cannot sell the house and settle the debt.
Good point I agree,
People in that situation should be able to hand back the keys to the bank, who then has to take the hit as well. The individual is then debt free (mortgage wise). That I definitely support, that mechanism alone would help enforce more care in handing out loans.
However people keeping their houses and having debt reduced I don’t, as in that instance it is the sensible paying for the reckless. With the reckless realizing the benefit as they have the house.
Be under no illusion, Lots of individuals borrowed and bought property with the intention of making money and selling on “property ladder”. Fueled by individual greed, it is important that does not get whitewashed too.
100 million times agree with everything you said google tracker! Well said!…. Perfectly put and 100 correct
The banks must comedown off their high horses and meet the lenders half way, rather than talking down to them.
Negative equity is the big picture. Normally, your would have borrowed less than 100% of the value of your home, it would appreciate slowly, a housing market would exist therefore you are always in a position to sell it with no overhanging debt.
100 million times agree with everything you said google tracker! Well said!
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