The publication last Friday of the new Personal Insolvency Bill 2012 means that Ireland is one step closer to a judicial and non-judicial settlement of the personal debt.
The Bill must now be debated, amended and passed in the Dáil and Seanad and, given that a new state insolvency agency has to be set up and staffed, which must then recruit a small army of trained Personal Insolvency Practitioners (PIPs), no one should expect the new system to be up and running before next year.
In the meantime, the Central Bank is beginning to get the banks to sort through their domestic debt books, prioritising the debts and borrowers into those who will never repay their loans, especially their mortgage loans; those who may be able to partly repay their debts with considerable positive intervention, including perhaps the voluntary sale of their property, which they might be able to rent back from a local housing charity; and those who should be able to repay their loans with proper forbearance measures, but without ultimately resorting to formal insolvency or bankruptcy.
This process is under the aegis of the and is what the Central Bank is hoping will help to clear some of the huge backlog of arrears and non-performing mortgages being held by the banks.
When the Personal Insolvency Bill becomes law next year, its provisions will support the measures that the banks will have already taken between now and then, or at least that’s the theory.
But first, the new insolvency/bankruptcy Bill.
First released in draft form last February, the final Bill confirms the setting up of a new Insolvency Service, to be run by the civil service with four options outlined in the Draft: a Debt Relief Certificate – now to be called a Debt Relief Notice – for people with no income/no assets (such as their own home) and less than €20,000 of unsecured debt such as credit card bills, hire purchase agreements, personal loans, etc. The discharge period has been increased from one year to three years.
Option two is a year discharge period Debt Settlement Arrangement for those with more than €20,000 worth of unsecured debt.
Option three is the six-year discharge period Personal Insolvency Arrangement for people with both unsecured and secured debts (such as mortgages) up to €3 million but no chance of paying their debts now or becoming solvent within the next five years.
At least 65% (reduced from 75%) of the creditors must agree to these two insolvency options proposal before the DSA and PIA will be agreed, though the Insolvency Service itself will not have a role in the DSA option.
The Bankruptcy part of the bill (see http://www.inis.gov.ie/en/JELR/Pages/PR12000198) confirms that the existing discharge period is reduced from 12 years to three years. (Examples of the insolvency options are included in this Supplementary Document produced by the Government: http://www.justice.ie/en/JELR/Pages/PB12000197.)
A very significant improvement to the draft Bill is that all these insolvency/bankruptcy options must be subject to Circuit Court oversight/registration of the settlements. Debtors will now have some recourse of appeal to the terms of their insolvency/bankruptcy application and process.
Unfortunately, a number of features of the draft bill that were seen to be unfair and unsustainable, including the income/asset restrictions for people who want to apply for a Debt Resolution Notice have not been amended in this Bill. The disposable monthly income of the DRN is still too small (at just €60) as is the value of assets they hold (more than €400.)
Also, the discharge period for the PIA does not take into account any period in which the debtor has already been engaged with their creditor. This means that a person who has been struggling with their debts for say, two or three years already, faces another six years under the onerous supervision of an insolvency trustee if they are successful in the PIA.
Also, and more worrying, is that creditors in a PIA (nearly always the banks) still have a veto over the terms or acceptance of a PIA application, even where one has been supported by the PIP assigned to the case.
Most critics of this clause suggest that instead of allowing some kind of work-out of debt, the creditors, by shooting down what could be a sustainable arrangement the banks will force many more people to opt for outright bankruptcy.
There will be more changes to this proposed Bill before it passes and is up and running.
Until then, anyone in serious debt needs to contact their creditors and/or MABS, the Free Legal Aid Centre or even New Beginning, the consumer lobby group for people in arrears and get their case processed under the existing Code of Conduct on Mortgage Arrears and the Mortgage Arrears Resolution Process.
The Central Bank is determined that the banks reach equitable debt agreements (including debt write-offs) right now under these Codes and not wait for the introduction of insolvency/bankruptcy law.
Given the continuing flaws in this new Bill, such an arrangement may produce the best outcome after all and certainly much sooner.