the current bankruptcy reform proposals

debates.oireachtas.ie/dail/2011/10/25/00006.asp

Alan Shatter yesterday :

In line with a commitment in the programme for Government the personal insolvency Bill is in the course of being developed in my Department to provide for a new framework for settlement and enforcement of debt and for personal insolvency. The commitment under the EU-IMF Programme of Financial Support for Ireland is to publish the Bill in the first quarter of 2012. It is my objective to publish the measure ahead of the EU-IMF deadline, if possible. Moreover, it is intended that the heads of the Bill, which are expected to be finalised in the near future, will be forwarded to the Committee on Justice, Defence and Equality for its consideration.

The Deputy will be aware that in developing the Bill, account is being taken of the recommendations of the Law Reform Commission in its recent Report on Personal Debt Management and Debt Enforcement.That report provided an in-depth review of the personal debt regime. The economic and financial effects of certain of the new arrangements that are in contemplation are being carefully assessed to ensure that all relevant issues are addressed and their impact is fully anticipated and understood.

The Deputy will also be aware that, following the publication of recommendations in an interim report of the Law Reform Commission, I provided in the Civil Law (Miscellaneous Provisions) Act 2011 for the reduction of the period to apply to the court for discharge from bankruptcy from 12 years to five years, subject to the same conditions that currently exist and, for the first time in Irish law, for the automatic discharge of bankruptcies on the 12th anniversary of the bankruptcy adjudication order. Those provisions were commenced with effect from 10 October 2011. A number of other mainly technical improvements to bankruptcy law contained in the Act of 2011 are already in force since 2 August 2011.

The question of a further reduction in the period for automatic discharge of a bankrupt and the period for application to the court for discharge from bankruptcy are being considered in the context of finalisation of my proposals on the personal insolvency Bill. The decision will be made having regard to the Keane report as well as the very focused discussion that continues between my Department and key stakeholders to identify the optimum new structures, at minimal cost, to bring about the reform. This necessary consultation, particularly in the context of the totally exceptional developing economic situation, is greatly assisting the development of detailed legislative proposals.

Additional information not given on the floor of the House

As I have said in the House previously, reform of our personal insolvency regime is not a simple task. It is a very complex area of the law and one where the consequences and implications of new policies need to be very carefully assessed. There is a delicate balance to be struck between the various legal rights of the parties involved. We must design a system which is fair to both creditors and debtors alike. Not to do so would make worse a situation that is already difficult for the parties concerned.

The reform of bankruptcy law will invariably focus on the length of the discharge period that will apply to the person adjudicated bankrupt. We debated this point in the House during the passage of the Civil Law (Miscellaneous Provisions) Act 2011 in July. Opinions varied as to the appropriate period. There was consensus that the one-year period that applies in the UK and Northern Ireland is too short, but anything beyond five years is too long, particularly if the bankrupt person has been fully compliant and not behaved fraudulently in any way. No final decision has been taken by the Government in this regard.

The quantum of debt that might be discharged in any new bankruptcy or personal insolvency arrangements has also yet to be decided. In bankruptcy, the debtor’s assets are fully realised for the benefit of creditors and that responsibility falls to the official assignee or a private trustee in bankruptcy. It is not, in my view, realistic to, at this stage, attempt to set down the quantum of debt that might be agreed to be discharged in the context of a non-judicial debt settlement. That would be a matter for the parties concerned. We must be mindful that in any debt arrangement, the debtor or bankrupt must be left with sufficient income to meet reasonable living expenses. Given the complexity of the personal over-indebtedness issue generally and the economic and financial implications of any changes to the personal insolvency system, these are matters which will require careful consideration by the Government.

Deputy Stephen Donnelly: It is good to hear that the Minister will not only meet but introduce the Bill ahead of the IMF timeline set. Specifically with regard to mortgages, the ideal situation would be that the bankruptcy conditions contained in the new legislation would be such that it could be used as a credible threat and, therefore, the person concerned would not necessarily have to go through bankruptcy but could say to the bank that if pushed too hard the person would be declared bankrupt and that the bank should, therefore, reach a settlement.

An Leas-Cheann Comhairle: A question please, Deputy.

Deputy Stephen Donnelly: The Minister mentioned five years in this context. As Minister for Justice and Equality what is his view on five years versus three years, one year or two years? When the Minister publishes the legislation and gives a recommendation on the number of years, will he also publish a comparative analysis that shows what works in other systems and why he has reached the recommendations that he has?

Deputy Alan Shatter: There are difficult decisions to be made in this particular area with regard to the number of years. It is not a matter of my personal preference. It is a decision that the Government must make.

The period for bankruptcy and extricating from bankruptcy, for example, in England was reduced to a period of one year. In other states there are different periods of years. There are a number of issues that must be considered in this context. We must ensure that bankruptcy is not used by individuals to evade debts fraudulently. There are those who owe money and those to whom money is owed and the position of both debtors and creditors, and the impact on their lives of the structure we put in place, must be considered.

We are giving careful consideration to how to proceed, both in the context of what I would describe as non-judicial means and also the judicial means of dealing with insolvency. There is a range of different options with regard to arrangements that may be entered into voluntarily with creditors and arrangements that may ultimately require an adjudication in a bankruptcy context.

I do not want to pre-empt the decisions to be made by Cabinet other than to say we are moving ahead carefully in this, but we also must be aware of unintended consequences that could arise that could have a detrimental impact on taxpayers in the State generally. This is a particularly complex area in the context of the unprecedented fiscal difficulties confronting the State and the banking difficulties with which Deputy Donnelly is intimately familiar.

Deputy Stephen Donnelly: Will the Minister publish a comparative analysis and the rationale for whatever he does agree?

On the second piece to which he referred in his reply, when the discharge period is ended, is it the Minister’s position that the full quantum of debt owed at that stage will essentially be written off?

Deputy Alan Shatter: The reason for publishing heads of Bills once the Government has given detailed consideration to the applicable principles is to afford Members of the Oireachtas Joint Committee on Justice, Defence and Equality, and also Members of the House who wish to attend a meeting of that committee, time to consider them and to give their own input also into the substantive provisions that we ultimately adopt, bearing in mind not only the Keane report and the Law Reform Commission’s recommendations, but the comparative approaches taken in other jurisdictions. Deputy Donnelly will have every opportunity to engage in that way and I hope that a positive contribution is made by that committee. There is no monopoly of wisdom in this area but there is an urgent need for change.

Question No. 41 answered with Question No. 39.

5 years still seems a bit excessive would 3 years not be better?

I think five years as an introductory is wise. If it were one year there’d be plenty of people I know who’d stop paying their bills in the morning.

Good old Stephen Donnelly, wrong focus as usual.

Seriously out of his depth from what I’ve seen/heard, but rarely challenged. By the time the next election swings around he’ll be found out. Independents in fickle constituencies always are.

Whats the point in having a 5 year bankruptcy in ROI when one can file the UK and be clear in 1.

The current situation with mortgage arrears requires special measures, we can always increase the time limit when things improve, individuals weren’t trading recklessly when they bought apartments for €450K in ghost estates and then lost their jobs.

Would they be losing ALL their assets, including their house in the Med…?

It surprises me that so few people appear to understand the implications of the bankrupcy process, and that appears to include Allan Shatter.

All your assets are collated and all your liabilities are collated, your assets are divvied up amongst your creditors. During the bankrupcy period, any income you earn is administered by an individual appointed by the court and after deductions for living expenses is divvied up amongst your creditors.
If you retain any assets which have not been declared, it is fraud, for which you can be punished (in any other country :bulb: except ireland). The duration of the process has no effect on this, so Shatter is blathering on when he says this.

The period of bankrupcy is in fact a punitive period, to teach the debtor a lesson. If the period was shorter, it would teach the creditor a lesson, but that wouldn’t be acceptable in Ireland, because they are people/firms of means and shouldn’t have to be punished for the lack of oversight of their lending. With a shorter bankrupcy period, lenders and creditors would have to be more scrupulous about who they lend to.

I think that Blamegame is being a little unfair on Stephen Donnelly as he just asked why five years in the first instance and subsequently asked Shatter to publish the reasoning for the duration of the bankrupcy period. What should he have been focused on?

Because he sees bankruptcy as about an insolvent threatening his creditors. He completely misunderstands it. He is presenting himself as a white knight on this.

Isn’t that the whole issue? Everyone is making a big deal of the term; it’s a nice thing to argue about and make a lot of noise about. But in reality, the much more important details are being completely glossed over.

The “comprehensive” reform process could completely change what we think of as bankruptcy. For example,

  • what assets are untouchable by the bankruptcy court? The family home perhaps?
  • As you pointed out, what’s the penalty for hiding assets?
  • How are spouses, and transfers of assets between them prior to bankruptcy, treated?
  • Will bankruptcy disqualify one from membership of the Dail? Form being a company director? From being a Garda or judge?
  • After the bankruptcy period is over, will you be obliged to tell lenders that you were once declared bankrupt? For how long? Will it stay on your credit report?

Those issues are all far more important that 3 years vs 5 years.

Correct.
Other points

  • what happens to pension. What are spouse and dependents entitlements to income stream and what is the bankrupts future entitlement to benefits?

  • what is the position of a divorced spouse. What about court approved maintenance entitlements, what if the husband has a deferred asset such as right to half family home when kids leave?

Most most important is the Rule of Superior Court that says that a petitioner must pay the costs of bankruptcy without limitation. Banks reluctance to get involved in paying for complex multi jurisdictional personal bankruptcy is one of the reasons that so many developers are still driving S Classes.

@ Blamegame

He’s a politician, playing to an audience, his voters. Could you expect anything else? :laughing:

Aside from that, the intricies of modern bankrupcy (especially in the Irish context) appears far too complex for the oireachtas to get a handle on (if even they actually want to do so).

Charlatan behaviour.

Personal Insolvency is not Rocket Science. Our Oireachtas gets to grips with more complex stuff.
Let’s say there’s about 25 to 50 key points to be addressed. One of the TDs who’s presenting himself as an expert and writing newspaper articles thinks its about a debtor facing down his creditors.

As someone said here before. We don’t need an ‘Irish Solution’ we need everyone else’s solution.

I was thinking what might help lessen the tSunami would be if the BTL sector were allowed to park their RIPs in a pension product. No tax on the rental income but no benefiting from it either. And pay down the mortgage till they are 65.

One amongst many.

I must confess that I do not have your faith in the oireachtas to introduce comprehensive, logical legislation. A recent look at the miscellaneous provisions acts demonstrate a hodgepotch of legal sticking plasters, ammendments, changes and corrections of previous legislation, which in many cases was poorly conceived, framed and enacted.

Old style, vested interest politics never dies.

independent.ie/national-news/new-bankruptcy-plan-sparks-bank-mortgage-fears-2927384.html

The banks want to continue to avoid accountability for stupid mortgage lending practices. If the government give into this pressure, they are laying the foundations for the next property bubble, bank failure and taxpayer payout.

I have no problem with provisions dealing with ‘can pay, won’t pay’ operators who want to hand back the keys but a blanket exclusion of all mortgage debt from bankrupcy provisions defeats the purpose.

Its about time that banks were held accountable for the stupid, greedy decisions that they have made.

Interesting piece on this in yesterday’s Indo focusing on whether mortgages are to be included in the scheme.

independent.ie/business/pers … 86613.html

Yes. Very interesting article. The Nama/Certus debt write off free for all will be extended.

It is amazing that Shatter’s loyalty towards Enda at the last heave has led him in the twilight of his career to be making such huge decisions.

That’s not really what I took from it to be honest BG.

My reading is that Shatter’s proposals will, for once and for all, exclude the possibility that you can keep your home if you can’t pay your mortgage (ie, no debt forgiveness, although it’s not clear whether forbearance would continue). Moreover, if you surrender your home an independent authority will see that you repay the bank what you can during the period of the insolvency (which would be an extra-judicial process). These are the key paras for me, condensed into one:

The giveaway is here:

Those parties realise that the inevitable consequence of Shatter’s proposals would be widespread surrender of properties that would then need to be firesold. Hence, more capital holes in balance sheets with all the implications that has (although it is my understanding that the last bailout tranche - was it €25b? - has already been set aside for residential mortgage write-downs, so it’s already accounted for).

Ed: BTW, should this thread title be changed to “Insolvency” rather than “Bankruptcy”? Or are they the same thing? Or are there separate proposals on each? Or is the title accurate as is? Or, or, or…wha??

Nice summary Larry thanks

The Insolvency Bill was signed off at cabinet this morning. Enda and Eamon are having a presser on it this afternoon at some point. Details will be interesting.