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Personal Insolvency Bil 2012: From the Seanad (Resumed) (Continued)

Wednesday, 19 December 2012

Dáil Éireann Debate
Vol. 787 No. 4

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(Speaker Continuing)

[Deputy Alan Shatter: Information on Alan Shatter Zoom on Alan Shatter] It replicates something that is already in bankruptcy law with which the Deputy will be familiar. With this legislation we are effectively describing a period of three years' bankruptcy. The only circumstances in which bankruptcy is extended, to paraphrase the legislation, is where there has been a fraud on behalf of the debtor or there has been a clear concealment of assets which may lead to the bankruptcy period being extended for up to eight years. Those are the only circumstances in which the bankruptcy period can be extended. There is no question of this section extending the bankruptcy period from three years to eight years for individuals who have not engaged in fraud and have not concealed assets. It is very important to get across that message. This is not a provision that will turn what is to be a three-year bankruptcy period into an eight-year bankruptcy period and it quite clearly does not do that.

What does the section do? The section contains a provision which allows for the official assignee in bankruptcy to seek a "bankruptcy payment order" by way of application to the court. The circumstances in which the bankruptcy payment order may be sought are where during the course of the three years of the bankruptcy period, the individual's financial circumstances might substantially improve and there may be a valid ground for arguing that post-bankruptcy it is reasonable that he or she continues to discharge some element of the outstanding debt that has not been discharged during the course of the bankruptcy.

The official assignee may be asked to pursue that issue by any creditor - it does not have to be a financial institution. Let us always remember that we are dealing with insolvency legislation. The area about which the Deputy is concerned is of course of particular personal concern to me and to the Government. However, let us start from the perspective that this is insolvency legislation. In the context of insolvency legislation where money is owed to creditors, there may be other individuals who are barely hanging on financially and who during the course of the bankruptcy have not recovered a reasonable portion of the debt that is there, but because of the improved circumstances of the bankrupt there is a fair and reasonable prospect they may get something additional. That could also apply to a financial institution.

The official assignee has discretion, first, as to whether he or she makes that application and, second, as to how much that application is for. It will be for the courts to determine how to deal with these applications and they must deal with them in circumstances in which individuals who have exited bankruptcy no longer have any of the constraints or difficulties of being a bankrupt. The person is free to get on with his or her life, to create another business and to generate income in whatever way he or she chooses. If the person is successful in that, it may be fair and reasonable for the person to discharge some additional portion of debt. There will be circumstances where that is appropriate and there clearly will be all sorts of circumstances where that is not appropriate. From the perspective of a creditor, whether secured or unsecured, a financial institution or another party, there is no guarantee of the outcome of making such an application to the courts.

The official assignee may determine it is not appropriate to make the application. Even when the official assignee makes the application, the courts may determine it is not appropriate to make the order because there is a particular philosophy about this legislation. The particular philosophy is that people are genuinely given a second chance to get on with their lives and exit from their financial difficulties. Of course people exiting bankruptcy must be given an incentive to get on financially successfully with their lives and not to find themselves put into further penury. That is all very important.

As the Deputy correctly says, this legislation is based on a certain approach. It is based on an approach in particular dealing with the personal insolvency arrangement which deals with secured credit where it is perceived there is an incentive for all creditors, including financial institutions with secured debt, to engage constructively with a personal insolvency practitioner to see if an agreement or resolution can be reached. For a range of reasons bankruptcy may be a very bad alternative, as much for the financial institution or other creditors as it is for the debtor because a debt settlement or personal insolvency arrangement may, over a period of years, create a greater possibility of recouping some of the debt due and may create greater opportunity for the debtor to exit the arrangement. From the financial institution's perspective the bankruptcy would produce an inevitable sale of the home. This may not be something the financial institution wants to achieve for a range of reasons. If it travels the route of repossession as opposed to bankruptcy there may be substantial downsides. The Deputy is aware of those and I will not delay the House by going into them.

This mechanism has been part of bankruptcy legislation in other jurisdictions for some time and it remains part of this structure. However, to suggest it creates a bankruptcy period of eight years instead of three years is incorrect. All of the constraints that come with bankruptcy are lifted from an individual. To some extent how this will work in practice in the context of the new arrangement or how it might impact on discussions and negotiations is greatly a matter for conjecture.

The personal insolvency arrangement arises in circumstances in which we have tens of thousands of people who are in significant personal financial difficulty with home mortgages. There are individuals who might have been part of two-income family households and are now part of one-income family households, individuals who may have been self-employed in businesses that were successful in the early part of the 2000s but are barely eking out a living for today, and individuals whose assets have collapsed. God help them, they might not only be in negative equity but might have invested whatever savings they had in bank shares which have completely gone down the toilet. There are many individuals in this State who, through no fault of their own, are caught in a debt trap. Some individuals are caught in that debt trap through their own irresponsibility. Not everybody is there for reasons beyond their control. However, there are thousands of people who are there for reasons beyond their control. They have been hit by a fiscal and economic tsunami. They are individuals who perceived themselves as being in secure employment and then found themselves unemployed. They are individuals who were running businesses that appeared to be successful, but who, because of the failure of others to pay debt, have found themselves in debt with other businesses, perhaps companies going into liquidation, non-corporate businesses, SMEs or single-ownership businesses that have been wound up. Many people are in trouble.

The issue is that the banks must constructively engage with this legislation. As I have said in the context of the personal insolvency arrangements, there are options for a financial institution with secured debt, be the secured debt a home loan or another form of loan. Based on the individual circumstances of the debtor concerned, arrangements will clearly need to be put in place that are either debt forbearance or involve some aspect of debt forgiveness. There is no doubt we know financial institutions will engage in debt forbearance. We know of in excess of 80,000 home loans where debt forbearance arrangements have been put in place, some of a temporary nature and some of longer duration. There are individuals who have benefited from debt forbearance arrangements and have now worked themselves out of that and are now paying full capital and interest.

The area in focus is that of debt forgiveness. Where individuals are genuinely insolvent and cannot, as opposed to will not, pay their monthly repayments, who are burdened by other debt and may be living in negative equity, to what extent will the financial institutions engage in debt forgiveness and write down?

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