The Personal Insolvency Bill was published today. This legislation is a means by which those who are on the brink of financial ruin may be given a way out.
We are currently in the midst of what is essentially the Irish Great Depression. If we are to take measures to get ourselves back to a situation where we can recover from this a realistic approach has to be taken. The banks cannot continue to rely on the repayment of debts which people have no hope of ever paying and where negative equity is rife. This new deal will provide a mechanism whereby a realistic level of debt repayment could be achieved while at the same time assisting those who are struggling with an income which will ensure they have a reasonable standard of living. It should take the fear, which people currently have, out of dealing with debt and this will have positive knock on effects for the wellbeing of those in debt, for their families and for the larger community. It will allow people who have found themselves drowning in a sea of financial uncertainty to restart their lives and plan for their future.
The Bill will do this by affording struggling debtors the opportunity to write down their debt by spreading it over a six year period. The Bill also reforms the Bankruptcy Act 1988 and a significant new measure under the Bill is to reduce the bankruptcy period from 12 years to 3 (or in some cases 8) years, allowing people to wipe the slate clean and make a fresh start once this period has expired.
The Bill’s new proposals include a Debt Relief Certificate which will allow people with no assets or no income with debts of less than €20,000 to be written off, a Debt Settlement Agreement (DSA) which will cover loans with two or more creditors in the amount of €20,000 or more and a Personal Insolvency Agreement (PIA), which will apply specifically to mortgage holders for secured and unsecured debts of €20,000 to €3million. Borrowers will have to apply to insolvency agencies through companies such as the Money Advice and Budgeting Service (MABS). MABS may be the new State-run insolvency service to mediate between banks and borrowers.
All debt deals will be dealt with on a case by case basis and creditors, such as banks, will have to agree, but up to a quarter of all Irish mortgage debt could be written down under the new proposals. One of the most important factors at this stage however is for people to be aware of exactly what loan arrangements are in place with each lender and what powers your lender has to enforce these. In preparation for these new laws we have been assisting many clients in carrying out full audits to ensure all proper procedures were followed by the lender at the time the loan was entered into. Any errors on their part could prove to be useful in negotiating the debt downwards at a later stage.
Debt in Ireland has reached epidemic proportions and is crippling people across the board from all areas and backgrounds. These new measures have the potential to allow for a realistic solution so that people can start again to rebuild their lives and make contributions to economic recovery instead of only servicing debt.
It has become more than obvious that the present credit difficulties are here to stay for a considerable amount of time into the future. Therefore, all the strategies of postponing debt by deferring interest or capital payments are no longer a realistic approach. We have taken the view that it is now time to deal with debt management in the context of long-term debt with long-term solutions. With this in mind our strategy is twofold – firstly establish the amount of debt which you are capable of servicing and, secondly, put realistic strategies into place to deal with the balance.