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Archive for August 15th, 2012

“Fitch has gauged views from Irish banks on the impact the legislation would have on their mortgage portfolios and the agency believes PIAs [personal insolvency arrangements] would not be an appropriate solution until existing forbearance measures which banks currently employ are exhausted. For this reason and also due to the ability for banks to vote against proposed PIAs if they view them to be an inappropriate solution, Fitch does not expect a wide-scale take-up of PIAs for delinquent borrowers.” Ratings agency Fitch press release 14th August 2012

The usually sound Wicklow and East Carlow Independent TD, Stephen Donnelly seems to welcome the recently published Bill despite it needing what he calls “tweaking”. Deputy Donnelly has sat through the early Dail debates on the new Bill which he has no doubt studied, but with respect to him, the view on here is that the presently drafted Bill will not deliver real bankruptcy legislation. The ratings agency Fitch seems to agree in its press release yesterday.

How will we know when we have real bankruptcy legislation in Ireland? Perhaps we could adopt a metric like the number of bankruptcies in other jurisdictions, Northern Ireland, Britain or the US, for example, and then compare the numbers seeking bankruptcy here. If the numbers here are substantially less than in other comparable jurisdictions, then we’ll know we have sham bankruptcy legislation. The problem is that it will take some time, perhaps years, to be able to arrive at a conclusive judgment.

So the suggestion on here, to answer the question whether or not we have real bankruptcy legislation, is more immediate and basic – if a person has debts which exceed their assets, is there an avenue open to that person which is

(1) accessible to people who might be in financial and personal distress

(2) allows the slate with creditors to be wiped totally clean

(3) does not interfere with a person’s employment

(4) sets a reasonable period for a person’s assets to be sold/repossessed and for a person’s income to be garnished in favour of creditors

(5) has penalties in cases where a person makes dishonest declarations of their financial condition, for example by hiding assets

The Personal Insolvency Bill introduced by Minister for Justice, Equality and Defence, Alan Shatter in June 2012 will not provide Ireland with a bankruptcy regime which meets the above five conditions. The evidence appears to suggest that banks and banking interests spancelled the legislation before it was even published.

And before dismissing “greedy bankers” and their underhand ways, along with compliant politicians and a conspiracy between the two, remember that we own much of the banking sector so losses suffered on mortgages by banks through bankruptcy may expose us all to further bailouts for our banks. Whilst the prospect of more bailouts might be more remote than the visible or identifiable plight of ourselves or our neighbours, it is not something to be dismissed out of hand.

We currently have the most draconian bankruptcy legislation I have seen anywhere in the developed world, and the new Personal Insolvency Bill is certainly a step in the right direction to more evenly balance the rights of debtors and creditors and to provide a resolution which most developed countries see as being overall to the benefit of their economies and society. The legislation for unsecured lending seems to be in line with our neighbours’ legislation in the UK, and for immature youngsters that have run up thousands on their unwisely-provided credit card, the legislation seems to recognise that without major assets, the best you can do is garnish wages for a relatively short period.

On the other hand, in cases where people have secured debt – and here, we are mostly talking about homes subject to mortgages – it is bizarrely the bank which has the ultimate say over whether or not you can pursue bankruptcy. This flies in the face of the very essence of bankruptcy – someone whose debts exceed their assets having the indefeasible right to a resolution.

The banks and banking interests – and yes, I’m looking at you Central Bank of Ireland governor, Professor Patrick Honohan! – are concerned that if bankruptcy is available on too wide a basis, then the resultant losses at the banks will be too great, and in the case of the CBI, the fear must be that banks will again see their capital base threatened and may need additional bailouts. Again, these are not concerns to be waved away without consideration. No doubt Governor Honohan would like to see a real bankruptcy regime, just not now when we are navigating the depths of a economic depression with banks still in critical condition.

But a proper bankruptcy regime is not just good for borrowers, but for the economy and society as well, and banks and banking interests should be subservient to the wider needs of the economy and society. It seems incredible that a Labour party component of the coalition would reject legislation which offered their core constituency humane relief, and, in September when the Dail returns it is for the Opposition generally to hammer home the fact that this Personal Insolvency Bill does not deliver real bankruptcy legislation. Remember it was just under a year ago when President Bill Clinton told the Global Irish Network in DublinCastle that the mortgage crisis was the number 1 problem facing this economy. Taoiseach Enda Kenny (pictured below) promised to address it, and in September, it is incumbent on all politicians to help him fulfil his promise.

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