The rationale for debt settlement Paul Joyce, Free Legal Advice Centres Legislating for personal insolvency in Ireland

‘With dramatic growth in the extension of consumer credit in recent years and increasing evidence of clients presenting to the Money Advice and Budgeting Service (MABS) with high levels of debt, it is imperative that Ireland put its own (debt settlement) legislation in place’ From An End based on Means (Page 123), May 2003

The structure of the scheme A Debt Relief Certificate (DRC) – to apply to specified unsecured debts up to a maximum of €20,000 A Debt Settlement Arrangement (DSA) - to apply to unsecured debts generally, over €20,000 A Personal Insolvency Arrangement (PIA) - to apply to both secured and unsecured debts between €20,001 and €3 million

The structure of the scheme An application for Bankruptcy For a creditor’s application, a debt of at least €20,001 must be owed. A debtor petitioning must show that he or she has made reasonable efforts to reach an appropriate arrangement with creditors, including the other three options above

Infrastructure Insolvency Service and licensing insolvency trustees Debtors are often vulnerable and need protection The case for public as well as private trustees The role of the trustee as mediator rather than advocate

Creditor approval thresholds DSA – 65% of creditors PIA – 75% (or 100%) of secured creditors - 55% of unsecured creditors Significant obstacle to reaching agreements – independent oversight and review required

Minimum Protected Income ‘Sufficient income to maintain a reasonable standard of living’ for debtor and household See ‘A Minimum Income Standard for Ireland’ – Vincentian Partnership for Social Justice Critical issue in terms of both fairness and effectiveness

Factoring in mortgage debt Figures available on mortgage debt but still not on personal debt generally Maintenance of family home a key priority DSA not for secured debt but secured creditor may reschedule to facilitate it

Factoring in mortgage debt PIA – Trustee must frame proposal with a view to retaining family home Write-down of principal and rescheduling of mortgage for duration of the repayment plan Obstacles abound – creditor vote/objection, wide definition of secured debt

Bankruptcy Automatic discharge after three years but note five years of possible ‘income payments’ Note too extension of bankruptcy to eight years on grounds of lack of co-operation, dishonesty DSA – 5 (6) years, PIA – 6 (7) years, Bankruptcy – 3 years - danger that scheme will be bypassed with overly lengthy repayment periods

Miscellaneous Significant imbalance in scheme design in a number of key respects Outside of the personal insolvency scheme, debt enforcement will continue Where is the modernisation of outdated debt enforcement mechanisms?