What do you think of the proposed Personal Insolvency Bill 2012?

What do you think of the proposed Personal Insolvency Bill 2012?

Could the Personal Insolvency Bill be what is required to ease the burden of debt for people?

There has been extensive coverage of the proposed Personal Insolvency Bill which will go before Oireachtas in April. If passed it will fundamentally change the way that debt law in this country operates, we’ll fast-forward out of the dark ages into a fully modernised system.

But are there concerns about it?

What if it results in people orchestrating their own financial demise in order to obtain preferential terms with creditors? Does allowing banks to have the power to hold sway over certain aspects of the negotiation process mean that we still won’t be fixing the massive mortgage problem which is well in excess of 100,000 accounts?

For every solution there is often a new problem that walks hand in hand with it….

Today we’d like to hear your thoughts on the matter, and as always, we give you a chance to cast your vote…

This weeks poll….

Don’t leave the page without voting! And better yet, leave a comment too if you have something to say!

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The proposed Personal Insolvency bill is 135 heads (or sections) long and covers 164 pages. It is a behemoth of new legislation, which will fundamentally change the vista of Irish debt and debt recovery when it comes into force.

There are four general solutions:

  1. Debt Relief Certificate: For unsecured debts below €20,000
  2. Debt Settlement Arrangement: For debts over €20,000, this may or may not involve mortgages – lenders rights on mortgage debt are not affected but they can facilitate or allow this scheme with their consent.
  3. Personal Insolvency: For debts greater than €20,000 but less than €3,000,000
  4. Bankruptcy: This has been modernized so that the discharge time is now three years automatically rather than 12 (at a minimum) as before.

The full bill is available here, but what we want to focus on today are some small points in the legislation that raise questions.

One question is ‘who will regulate Personal Insolvency practitioners’? In the UK it is a regulated activity, but in Ireland there is no implicit remit of the Central Bank to be the enforcer of standards – debt management is an unregulated activity.

To become a Personal Insolvency Trustee you will have to obtain authorisation but in an ongoing sense who will oversee the people doing this?

How will the Keane Report solutions for distressed mortgages come into play? In Head 97 of the proposed act you won’t have to give up your primary residence unless you agree to it or opt to; however, that might still lead to you not being the ‘owner’ – instead you might become a tenant, is that the best way of doing this?

In the USA under Chapter 13 (Title 11) – also known as ‘waged examinership’ you can stay in a primary home and stop foreclosure under certain conditions but the inclusion of the homeloan is not implicit in the ‘new deal’. In this respect Ireland has taken a giant leap forward, this is something to be pleased about (unless it gets abused somehow).

The protection under these schemes is dependent upon certain ‘performance’ by the borrower, that they don’t go into arrears under the new plan (whatever it may be after negotiations finalise); does that mean (eg: head 78(1)(g)) that if you redefault because you went from under-employed to unemployed that you may be waiving protection? There are provisions for extreme circumstance but no precedence or test cases.

As an industry ‘Personal Insolvency’ in Ireland is not yet born and there are going to be teething problems, lots of them, expect regular news-flashes talking the process up or down, complaints will probably be high in the first two years which, due to pent up demand, will be a slaughterhouse.

One thing banks are likely peeved about is the idea that some aspects of personal liablity guarantees may be undone for entrepreneurs – because debts incurred in the pursuit of a trade or profession can be factored in. Will that count if the trade was via a limited liability company where a personal liability guarantee was signed or does the company have to be pursued first? That is an example of ‘testing’ this legislation will get early on.

There may also be a knock on effect for Landlords. Head 22 (3)(iii) states that ‘qualifying debts’ will include rents, utilities and telephone. If a tenant goes bang in this respect then there will be no point in getting a PRTB ruling (which are functionally worthless anyway) in your favour. What happens in a situation where a person stops paying rent for a long time before going for a debt arrangement and there is a build up which creates the qualifying debt amount? (this is an example of ‘gaming the system’).

Oddly, a retired person who has a large pension pot might be ‘wealthy & poor’ all at once because this lump sum will be viewed for its income potential rather than its capital value (head 23(4)(b)(v)).

At the lower end of the scale you need to prove you have €60 or less after bills and debt payments, and assets of less than €400 – ensuring a person is over the edge in advance makes it harder to come back (good for preventing moral hazard, maybe not so good for economic dynamism).

And of course, a vehicle with a value of over €1,200 can be taken as an asset in a Debt Relief Certificate case but you may lose the ability to find work for that reason!

The cost of unsecured credit will likely go up now that the risk profile has changed (people actually have new empowering rights once this comes in).

We also don’t know who pays the independent debt manager? Will there be standardised fees?

So while we are huge proponents of this legislation and totally in favour of it, we also see early on that there are going to be implementation issues. Hopefully they are outweighed by the societal benefit to finding a course of action that allows people to fail financially in a humane manner.

@karl deeter

Irish Mortgage Brokers

There are 14 comments for this article
  1. Corky at 12:46 pm

    Bankruptcy in NI is a more attractive option than this bill,particularly if you are out of work. Even if you are in work you only have to pay your creditors back for three years instead of 5.
    With regard to the negative equity,I wonder are the banks gonna bring in the proposed system of freezing the interest where you pay down only the capital to an affordable amount. I think this could be a good option if you wanted to rent a larger place and have rent cover your mortgage on the home place.

  2. Sean at 4:17 pm

    I was hoodwinked into buying a home during the boom as the media, government and people selling houses had me convinced that I could become very wealthy foy very little effort. Now that I find that I actually have to pay back money I borrowed, I would like to not pay it back but to keep the property I borrowed against.
    Unless Enda Kenny lets everyone off their mortgages and keep their homes, then their will be a bloody revolution of the suffering middle classes the likes of whic you have never seen before.

  3. thybony at 2:43 pm

    when will we have a government for the people by people the new bill is a bank led bill why can we not have the same bill as England no debt prison we a jock but its on us we keep on take it and they keep on give it to us, as Michael collions said it not hard to beat the Irish they on there knees all ready. Irish tax tax and more tax thats what we need that going to fix every thing it has to be right the government said so .time is now rise up and be counted tell them no more no more burn cars in the street what ever it takes take back our country .

  4. Eamon at 4:15 pm

    The “reasonable standard of living” is worrying as from past experience what is regarded as reasonable by the banks, will be far higher than what the average person has, who will not be able to avail of Personal Insolvency.

  5. Thomas McGrath at 4:56 pm

    A big change to the law is needed, but the big problem is that the creditors (banks) need to agree to each particular case, which could be hard for them to do, we will wait and see.

  6. Tony M. at 2:38 pm

    Hi, just responding to the dissatisfaction some home owners expressed over negative equity. Also offer suggestion about how the government may alleviate peoples fears of potential homelessness or becoming the subject of the terms and conditions of private landlords. It is expressed that PRTB rulings are worthless (this sentiment was expressed above) when a tenant and landlord come into conflict.

    Firstly, I would ask if the government is to carry out inquiries to determine what role, if any, stakeholders may have played in the creation of the housing bubble? Stakeholders mentioned in various reports are:bankers, brokers, educators, estate agents, PRTB, purchasers, developers…

    Secondly, is it feasible for the Department of Social Protection, at this time, to consider transfering the 518million Euros, quoted in the Irish Times, spent on welfare benefits to support renters, mortgage relief ect…, to utilizing NAMA held properties. Can NAMA be regulated sufficiently to facilitate relationships between it and Government Departments so that peoples housing need can be provided for by using as many of the houses held by NAMA (all of which are owned essentially by the tax payers of this county, past, present and future. This will facilitate NAMA properties from falling into disrepair and support a better return for these properties should they be sold on at a later date to re cope losses to the taxpayers: past, present and future…

    Housing need in this country ought not be a commodity item. It is essential to peoples health and well-being and should be kept beyond the reach of speculators and anyone with profit motives.

    I would welcome clarification/discussion on any aspect of this post

  7. UB at 1:45 pm

    As far as I can see there are way too many loose ends as yet. Who will pay the “debt managers”? What are “reasonable costs of living”? Will people in the one-year loop be disincentivised from taking up employment? etc.

    We live very frugally in a sub-standard house that we cannot afford to renovate and retrofit for energy efficiency because of lack of funds. I’d say 80% of what we own we bought 2nd hand, including clothing, furniture, kitchen + office equipment. Ebay, Donedeal and Freecycle are our good friends. We could have borrowed of course during the “Tiger years” to renovate/retrofit but decided it was better not to go into debt but to try and save and do stuff if and when we can afford it.

    As it turned out, my partner and I built up 10,000 in debt after all when he got seriously ill a few years ago. He could not get illness benefit because he is (seasonally) self-employed. His medical card application was ‘being processed’ and then ‘lost’ for a good while, as seems to be the custom in the HSE, judging from the comments on ‘Lifeline’. So by the time he got it, most of the cost had been incurred and of course it’s not backdated. He also can’t get the dole off-season because I am earning “too much”. Of course, many years ago when he was briefly on the dole and I had not yet found work in a new area I was not considered a ‘dependent’ because we were not married. So the two of us had to get by on £60/week. But the minute I got a job he was cut off. All of a sudden he was considered my ‘dependent’. You just can’t win if you are honest.

    A year or two before his illness I was offered (without prompting) a pre-approved loan by BoI equating to my (small) *annual* earnings. I declined and, to the bank clerks obvious astonishment, I told him that the bank was nuts offering this to me because there was no way I could pay it back.

    We still haven’t quite clambered back into black numbers but there is no way I would ask anyone else to bail us out. As you say, Karl, the cost of unsecured debt is likely to increase. So as long as we are in the red we get screwed yet again. As you can imagine, Enda’s comments in Davos seriously make my blood boil.

  8. Thomas at 1:32 pm

    If the banks create money out of nothing and make a profit by charging us interest, is there a valid contract when we take out a loan? I.e. if there is no valuable consideration given by the bank, there is no valid contract. And if this is the case, why are we bailing out the banks and being oppressed with ever more taxes and new charges to pay them? Any do we really have an obligation to pay off a loan which was taken out under a non-existent contract?

  9. Tom at 1:26 pm

    A person’s liability should be limited only to the amount that the mortgaged property is sold for in the case of foreclosure. This would make banks think twice about handing out mortgages to people who can’t afford them. This would have prevented 100% mortgages.

  10. Aniko at 12:03 pm

    I think the problem with the proposed bill is that it tries to tackle only the results of unethical business conduct, and does not include preventive measures:
    1) allowing banks to give loans/mortgages to people who can’t afford it
    2) allowing builders/developers to hand over developments where the quality is well behind standards – basically the “finished” property is worth 10-15x more than the cost of building it (allowing the use of cheap, poor quality materials)

  11. Joe e at 10:06 am

    I was shafted buying my house by a greedy auctioneer and a greedy developer who also screwed us over by being the management company.i got the worst neighbour ever who caused nothing but problems. It eventually meant we had to move out.. Renting the house and losing a fortune on negative equity. The banks have been bailed out. Why ccnnot we be

  12. Colm at 10:03 am

    Yet again the Middle Class have to pick up the tab for someone else. The government have piled the burden of those at the top and those at the bottom on the few people in the middle unlucky enough not to have lost their jobs. There needs to be a solution to the crisis that creates a new Ireland for all people. There seems to be a government policy to force the middle class to pick up the endless demands of the Bankers, Bond Holders, Developers, Politicians, Welfare recipients, Public Servants, Pensioners. We are slaving 12-14 hours a day to pay everyone elses lifestyle.

    If this government is too lazy or witless to come up with a new Ireland then we will treat them as harshly as we did Fianna Fail in the next election. We need leadership that represents and defends the middle class majority and at the moment no one is doing that.

  13. Paul at 9:46 am

    I believe as posted previously that all stakeholders must share the pain as equally as possible.I think that most people will be hounded until the last drop has been sucked out of the home owner as I doubt if the banks are going to change their spots.With no inbuilt safeguards for the home owner against the aggressive behaviour of the financial ‘institutions’or whoever they sell their bad debt book to.What is the difference to the borrower if the debt is 50k or 500k when this harrassment will continue.
    All stakeholders (Borrower Banks national and international Government solicitors estate agents valuers surveyors engineers etc)should share the pain and bring closure to the sorry transaction ASAP and start again. Their employees I’m sure would welcome to start a positive new business era instead of the depressing job of wasting resources trying to take blood from a ‘stone owner’
    I could go on but its friday morning of national positive mental health week ( the week credit card bills arrive for xmas xcess)ironic and maybe the positive message above would give us time to reflect and change the focus.

  14. Kilian at 9:32 am

    The Personal Insolvency bill is a welcome effort to help people out. I don’t think it goes far enough and i think its open for abuse. The biggest disappointment i have with the proposal is that it does not cater in any way for those of us who are trapped by negative equity but can (thankfully) still meet our mortgage repayments. For example my house is now worth almost 150k less than the purchase price. its a small 2 bed close to city center but its now way too small for our familly needs (3 kids under 6!!). Our mortgage provider will not allow us to sell our house unless we payoff the mortgage in full. I suppose my question is are we better off allowing ourselves ‘go under’ – get some write off under the new bill and then cut our losses and leave the country?

    The comment yesterday from our leader that in fact it is our fault that we are in the state we are in just adds to our anger! Get your finger out Kenny – grow a pair and show a bit of fairness to everyone in the country.