“It is difficult to be precise as it will very much depend on individual circumstances and the nature and extent of the debts involved. However, for broad planning purposes for the first full year of operation of the new law and systems, our tentative estimate, based on a rough extrapolation from the comparable UK and Northern Ireland circumstances, is as follows – 15,000 applications for the two main non-judicial debt resolution processes – the debt settlement and personal insolvency arrangements; 3,000 to 4,000 applications for debt relief notices; and 3,000 bankruptcy applications. There were approximately 30 bankruptcy adjudications in 2011.” Minister Shatter in the Seanad on 21st November 2012
Minister for Justice, Equality and Defence Alan Shatter was speaking in the Seanad yesterday in advance of the imminent passing into law of the Personal Insolvency Bill. He stated that he expected 3,000 people to apply to be made bankrupt in the State in 2013 – that equates to an average of 60 per week, or 12 per working day. Yes, there is about to be limited bankruptcy reform in (the Republic of) Ireland.
In Northern Ireland presently, there are about five bankruptcies per working day or a total of 1,321 in 2010. In (the Republic of) Ireland in 2011, there were approximately 30 bankruptcies during the entire year and over the past decade there have typically been 10-20 per year. The stark difference between Northern Ireland/the UK on the one hand, and here, is down to the draconian nature of bankruptcy in (the Republic of) Ireland where the law as it stands today imposes a bankruptcy period of 12 years, is expensive and has a seriously deleterious effect on employment in certain professions. This is about to change with the Personal Insolvency Bill which is expected to be passed into law within the next five weeks, so by 1st January 2013, we will have a (slightly) reformed bankruptcy process which lasts three years – though eligible debts are capped at €3m, if you owe more than €3m, the old 12-year period will still apply – and banks still have the final say on whether you can obtain bankruptcy on secured lending.
It’s remarkable to think that in one year, 2013, there will be as many bankruptcies as in the previous 92 years of the State’s existence, COMBINED.
In addition to an expected 3,000 bankrupcties next year, there are expected to be 3-4,000 applications for debt relief orders which will be the new mechanism whereby unsecured debts up to €20,000 can be written off in a year – this will typically apply to students and young people to whom credit card companies had incautiously provided credit cards and the debts cannot be paid and the borrowers do not have any assets of any real worth.
The prediction on here is that there is still trouble ahead for politicians trying to fob off a highly indebted society with such limited reforms.
With some 20 NAMA developers being declared bankrupt in the UK – where there is a 12-month discharge period, where there is no €3m cap and where the main criterion for seeking bankruptcy is having debts in excess of the value of assets – and with some very high profile non-NAMA bankruptcies in the UK and elsewhere eg Ivan Yates, Westlife’s Shane Filan, David Drumm and non-NAMA developer s like Fergal O’Mahoney, people might quite rightly ask why those lacking the wherewithal to suffer the dislocation of a temporary or permanent move to the UK, have to make do with a 3-year bankruptcy period and why the banks still act as gatekeeper for bankruptcy where there are secured debts involved; or in other words, if people have a mortgage of €300,000 on a home now worth €150,000 and have little in the way of other assets, why the banks can still stop a bankruptcy bid.
“if you owe more than €3m, the old 12-year period will still apply” – I’m not seeing this in section 143 of the Bill. Am I missing it or looking in the wrong section?
” if people have a mortgage of €300,000 on a home now worth €150,000 and have little in the way of other assets, why the banks can still stop a bankruptcy bid” – Because an individual may still be able to pay their mortgage as it falls due?
@Will, section 87 is the relevant section I believe for the €3m, I know the Bill is going through debates but haven’t seen this being changed
“Section 87sets out the eligibility criteria that a debtor must meet
to be eligible to propose a Personal Insolvency Arrangement. These
are that the debtor must be insolvent, that at least one of his or her
creditors must be a secured creditor, that subject to subsection (5),
the aggregate secured debts must be less than €3 million, that the
debtor must be domiciled in the State, or within 1 year before the
date of the application for a protective certificate, have ordinarily
resided or had a place of business in the State, have completed a
Prescribed Financial Statement and made a statutory declaration
confirming that the statement is a complete and accurate statement
of his or her assets, liabilities, income and expenditure.”
In other jurisdictions such as the UK, to get bankruptcy, you need show that your liabilities exceed your assets. Bankruptcy in that sense means insolvent, and just because you can service your loans today doesn’t exclude you.
It is not correct to say that if you owe more than €3m the old 12 year period applies. In so far as I can see there is no 12 year period in any of the new procedures. If you owe more than €3m then you can either seek a Debt Settlement Arrangement (5/6 years) or file for bankruptcy. The new bankruptcy regime will provide for automatic discharge after 3 years. The only exception is in cases of non-cooperation or sneakiness in relation to assets where a judge will have the power to extend the period up to a maximum of 8 years. Given the difficulty in proving non-cooperation or sneakiness I would guess that extensions will be rare.
As per Felicity Latters’ comment, you’re mixing up the PIA eligibility requirements with those for bankruptcy.
You asked the question re why no bankruptcy in those circumstances, I gave you an answer. Just because it’s the case in UK doesn’t oblige this jurisdiction to follow suit.
Will, my understanding is that whilst there is a 3M limit in the wording of the bill it can be somewhat notional as it can be increased if creditors are obliging. The existing 12 year may apply by omission (non legal opinion I might add).
Debts under €20,000 fall under the Debt Relief Notices (DRN) section of the legislation. Secured debts of up to the limit of €3 million falls under the Personal Insolvency Arrangement (PIA) section. Unsecured debts of any amount over €20,000 — no matter how large — fall under the Debt settlement arrangements (DSA) section.
Basically these sections follow a classical class division.
1. DRNs are for working class debtors.
2. PIAs are for middle class debtors with mortgages.
3. DSAs are for upper class debtors with all kinds of debts.
As you would expect, the penalties in each case become progressively more lenient[sic] as the debt level increases. DRNs can expect to lose any vehicle worth more than I think, €1200, and can have disposable income of no more than €60 per month.
PIAs are effectively made Wards of their creditors (the banks) for 6-7 years , with the banks being able to liquidate them at any stage. They get to keep only the cars and disposable incomes that the banks feel they are entitled to or strictly need.
DSAs are kind of like PIAs, but the terms are more generous. DSAs get to stay in their principal private residence(mortgaged or not), get to keep the costs of running it, and the costs of looking after their “dependents” and maintaining their “standard of living”. It’s not exactly penury.
DSAs also get out in 5 years, not 12 , 2 years before the PIAs. In addition, their cases must be handled by the Courts; and if they owe more than €2.5 million then they must be handled in the High Court.
The principal private residence can be of any size. It could even be a yacht(I am not making this up)!
Basically, the more you owe, the better the treatment you’re going to get under the new l. So, if you’re in trouble with the house, my advice is to get a few Credit cards and take a trip to Vegas.
There is nothing wrong with bankruptcy.
Bankruptcy Ends.
The problem in Ireland is that we have a bankruptcy period (12 Years), which in effect doesn’t end. A period that long will ruin someone forever. That’s not a proper bankruptcy regime and doesn’t solve anything.
We need short sharp UK style bankruptcies which End. Take people in, rack them for 12-18 months to satisfy the begrudgers, then afterwards let them back out and tell the creditors to eat the loss and shove off. That’s how our society will get over the debt crisis.
What we do not need is the PIA, “bankruptcy-lite” system, which offers all of the pain of bankruptcy for 5-6 years, but none of the protections. Someone in a PIA can be strung along for 5 years by the banks, then liquidated anyway and made properly bankrupt as they approach the final straight. I believe this is in in fact the intention of the bankers in Ireland, so criminal is their mindset.
PIAs are a kick the can into the car crusher arrangement. People will supposedly avoid the “shame” of bankruptcy, and will keep their poorly constructed ghost estate home, but the price may end up being very, very steep in the end.
Largely agree with your comment, but slightly puzzled by the following – “Someone in a PIA can be strung along for 5 years by the banks, then liquidated anyway and made properly bankrupt as they approach the final straight. I believe this is in in fact the intention of the bankers in Ireland, so criminal is their mindset.”
How will that work in circumstances where the individual is complying with the terms of the PIA?
I think your fairness argument is one-sided since you are only considering the assets side of the balance sheet. Debts to banks are also on the other side as bank liabilities (deposits and saving accounts) and the two sides balance with a tiny smidgen of equity capital separating them. Forgiving a bank debt also requires forgiving a bank deposit account or bank saving account. If we do not plan to forgive bank deposits and savings accounts (that is, confiscate them) then when we forgive bank debts, the taxpayer has to pay the debts instead. The debts do not disappear magically from the other side of the balance sheet when they are “forgiven” on the bank asset side. As for bank equity capital, forget it, with true-value accounting it is effectively zero at Irish banks. Any private debt forgiveness will come out of taxes. That might be fair but it is not obviously so.
@NWL
Consider a highly income lawyer/solicitor/stockbroker. No mortgage on personal residence but invested in property (mortgaged) for about €20 million, now worth ~10million.
After the PIA, the mortgaged property can now be sold, leaving a unsecured debt of €10million.
This person can now apply for a DSA, his personal (unmortgaged) residence is untouchable, and as @OMF says above they will get to maintain their ‘standard of living’ (Section 59F, if I am not mistaken).
The DSA section of this bill is for those who probably wrote the bill and their friends and acquaintances.
Think about ‘unsecured debts with no limit’. What kind of person got to run up those kind of debts?
Having scanned through the bill some time ago, I have not seen a better summary than that provided above by @OMF
“Basically these sections follow a classical class division.
1. DRNs are for working class debtors.
2. PIAs are for middle class debtors with mortgages.
3. DSAs are for upper class debtors with all kinds of debts.”
@Gregory Connor
“Any private debt forgiveness will come out of taxes. That might be fair but it is not obviously so.”
That is very true. But the banks when deleveraging are selling their loans at huge discounts every day of the week. That too is debt write-off.
In relation to the scenario you outline –
1. Isn’t €3million the proposed debt ceiling for a PIA? If it is, how does the individual in question enter into a PIA with €20million of debt?
2. Even if the debt ceiling wasn’t an issue, why would creditors being asked to agree to the PIA be willing to leave an unencumbered asset just sitting there? The banks are blue in the face demanding extra security for restructures for the last 4 years; the introduction of the new legislation may soften their cough somewhat, but in circumstances like those there’s no way they’d agree to a PIA without a charge on the unencumbered assets.
@Gregory Connor
“That too is debt write-off.”. Allow me to take that back please. The new owner can still collect the full debt, the discount being a loss to the Bank/ State. But the mortgagee is likely to be a partial beneficiary of the discount given on disposal of the bank loan, as the new owner is likely to accept a ‘settlement’. So in that sense it is debt write down absorbed by the taxpayer.
Many insolvency specialists I have spoken to recently tell me they feel that the PIAs etc are not going to be very attractive to debtors e.g. over in three years and not tied into an arrangement for 5/6 years with creditors. Just going down the bankruptcy route is quicker and easier; I think though you must prove that the other avenues didnt work first must you?
Keeping the PDH over their heads is the selling point of the PIA, I should think.
Why make things so darn complex for 4 million people when those that need it can live in the UK and get things done and dusted in a year. Why on earth did they not lift the legislation and Ctrl-V the darn thing in here. Is not as if they haven’t done it regularly since EU stuff is constantly being sent over. Granted they take forever and a day. But they can do it.
It is hard to believe they have taken this length of time and ended up here.
Could debt be taken as a TAX INCENTIVE for new / existing companies?
For example, a company wishing to invest in Ireland is encouraged to buy bank debt, say 50 million euro.
This would be a upfront fee, however for each 50 million debt bought a tax credit of 75 million is given, or perhaps 85 million tax credit?
So bad debts could be nibbled away, at the expensive of future tax returns of various companies. But if it led to investment, more employment there would be spin off effects, not to mention reducing the dole queue.
You can’t run a society on hat tricks. Sooner or later it will all fall apart — which is is doing right now in slow motion.
@ OMF, JR,
I share your frustration and disillusionment.
I was just trying to see if any method could be used to reduce peoples debt.
However I get the impression that this “crisis” which has befallen Ireland is all about pain and more pain.
There is no leadership or original ideas to be had from our political class.
@sporthog
“write off against future tax returns”… exactly why banks are skewering people in the courts, apparently.
One thing missing is the establishment of a credit bureau…
“Credit reporting is a system lenders use to decide whether or not to give you credit or a loan and how much interest they can charge you for it. Your credit report is based on the bills payments you have missed or been late paying, loans that you have paid off, plus your current amount of debt. A credit report contains information on where you work and live, how you pay your bills, and whether you’ve been sued, arrested, or filed for bankruptcy. Consumer Reporting Agencies (CRAs) gather this information and sell it to creditors, employers, insurers, and others. The most common type of CRA is the credit bureau.”
http://www.usa.gov/topics/money/credit/credit-reports/bureaus-scoring.shtml
What may happen is some unofficial “list” or blacklist will me maintained and probably shared by lenders,but what if you appear in error on it?
Also,if someone is diligently chipping away at their negative equity,paying all bills should they going forward pay the same interest rate,as someone who lost the run of themselves,say went to Vegas on credit cards…..
@John, a central credit register is on the way
http://www.finance.gov.ie/viewdoc.asp?DocID=7347
@NWL that’s excellent news,hopefully it corresponds to international standards and your “score” is accepted say in the US.
With emigration where it is new arrivals in the US have no current credit history,which is actually worse than a bad one.Complicates renting an apartment,getting credit cards etc.