“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.
NAMA Wine Lake 
Excellent analysis NWL.
Another key point is the ability of the better off bankrupts, (down to the last few 100,000) to go to the UK and be free within a year.
While the poor bankrupts will not be able to afford this option.
It looks suspiciously like an Irish solution to an Irish problem.
Loans were given out and debts assumed under a certain set of rules. There is a lot ‘off’ about changing those rules after the fact.
And certainly, if we incontrovertibly require them to be changed for the good of the whole country, the process should not be driven by those who assumed these debts under the then known rules.
Rather the process ought to stem from elsewhere (there should be no problem with this if it is incontrovertibly for the good).
However first, there is little degree of the necessary incontrovertible-ness about the facts in the context of the greater good at the current time. Second, the process does seem to be stemming in the main from those who assumed debts under the old rules. Or at least, whose interests lie in that direction.
There has to be some type of restriction on this type of ‘get out of jail’ card at the current time. These ‘cards’ are just too heavy an additional burden on the country at the present time. There would be no problem in normal times.
It is unavoidable that property related bankruptcies remain as burdensome as possible at the current juncture. Otherwise the burden is put elsewhere. The rewards were very high for these people. That entails the burden being high too, on the flip-side.
In other words, everything possible should be done to ensure people keep on servicing their property related debt for as long as possible. The vast majority are well able to. They just feel that there is no advantage in doing so.
But giving free rein to that sentiment would cost us even more than the property developers cost us.
This watery Personal Insolvency Bill is actually good politics. It is a playing for time, and time is everything in how equilibrium is restored in this country.
@paddy19 and other critics of bankruptcy tourists or forum shoppers,including Sean Kenny TD.
Last time I checked….”The freedom of movement for workers is a policy chapter of the acquis communautaire of the European Union.”
Here is Kenny grandstanding and illustrating a breathtaking ineptitude,parochial politics at its Irish best.
http://www.labour.ie/press/listing/13421789312869811.html
“We have seen high profile cases recently of what is called “Bankruptcy Tourism”, the most notable of which is the Priory Hall developer, McFeely. I would ask the Minister to clarify how the Bill will deal with this type of behavior.”
Kenny should dig out his history books from secondary school,may find a chapter on one the founding fathers of the Labor Party, Big Jim Larkin.
Big Jim was an undischarged bankrupt and could not take up his seat after the 1927 election.It stemmed from a libel award against him which he refused to pay.What is Kenny suggesting, insolvent people should be forced to surrender their passports,wear an ankle bracket to track them….
@Jeb yesterday it was announced that KW and DB purchased an Irish loan portfolio.
“International real estate investment and services firm Kennedy Wilson (NYSE: KW) today announced that the company and its partner, the European Commercial Real Estate Group of Deutsche Bank AG, acquired a loan portfolio with an unpaid principal balance of EUR361 million ($449 million).”
http://ir.kennedywilson.com/phoenix.zhtml?c=217898&p=irol-newsArticle&ID=1725566&highlight=
Has been suggested/rumored that its Lloyd’s book and traded below 20.How about,leveling the playing field in Ireland and free people from this ridiculous debt trap.The ability to file BK and mess up the above collection process is a BIG negotiating strength in these situations.
So following your logic,that German bank DB is entitled to pursue Irish RE borrowers to the ends of the earth for repayment in full,despite a basis of below 20 cents?
“In other words, everything possible should be done to ensure people keep on servicing their property related debt for as long as possible. The vast majority are well able to. They just feel that there is no advantage in doing so.”
This is part of the conundrum I think. There are a lot of people who are still employed and afford their mortgage (even if a squeeze), and nb lots of tracker borrowers have low low repayments these days, but where their debts definitely exceed their assets, because their home is worth 100,000s less than their mortgage. Do we want those people to be able to declare bankruptcy or not?
To the author: I’m a bit confused. I understood that section 105 of the Bill has the effect of giving secured creditors an effective veto in most cases over Personal Insolvency Arrangements. But in what way is it the case that “it is bizarrely the bank which has the ultimate say over whether or not you can pursue bankruptcy”, which is a separate matter?
Also, I’m a bit puzzled by the following – “This flies in the face of the very essence of bankruptcy – someone whose debts exceed their assets having the indefeasible right to a resolution.” That position may make someone balance sheet insolvent, but not necessarily cash flow insolvent. An individual may be balance sheet insolvent, but still able to pay their debts as they fall due, and I’m not sure that any jurisdiction makes personal insolvency arrangements for such a provision. Wouldn’t that be debt forgiveness, rather than bankruptcy?
@Will C, I would take issue with you on three points there.
Firstly bankruptcy is conditional on passing the Personal Insolvency and Debt Settlement arrangements.
Section 134
(2) In considering whether it is appropriate to
make an order under subsection (1) the Court
shall have regard to whether or not the petitioning
creditor had unreasonably refused to accept proposals
made in connection with a proposal for a 35
Debt Settlement Arrangement or a Personal
Insolvency Arrangement pursuant to the Personal
Insolvency Act 2012.”.
And
Section 135
(2) Before making an order under subsection
(1), the Court shall consider the nature and value
of assets available to the debtor, the extent of his
liabilities, and whether the debtor’s inability to
meet his engagements could, having regard to
those matters and the contents of the debtor’s
statement of affairs filed with the Court, be more
appropriately dealt with by means of—
(a) a Debt Settlement Arrangement, or
(b) a Personal Insolvency Arrangement,
So my reading – and I stand to be corrected – is that the bank remains the gatekeeper even under bankruptcy and can object on the basis that they think the debtor should be subject to a PIA.
Secondly, my understanding of bankruptcy has nothing to do with liquidity but is centred on insolvency – if your liabilities exceed your assets, and I believe that is the way it works in other developed countries.
For example singer Shane Filan of Westlife was recently declared bankrupt in the UK, and although I don’t claim to know Shane’s personal circumstances, it seems that he is the sort of person who would have significant earnings potential – as long as his voice holds up!
And in the US, you have poster-boys like actor Michael Madsen who was declared bankrupt but again, you would have expected him to have significant earnings potential – as long as he continues to look menacing!
Thirdly, “debt forgiveness” appears to me to be misleading phraseology. If someone commits murder and is subjected to the judicial process and serves ten years in prison, they come out and we say “they have paid their debt to society”, but the friends and relatives of the victim mightn’t see it like that.
Bankruptcy should not be easy, it should result in the bankrupt’s assets being taken to pay off debts and there should be an appropriate period during which the bankrupt lives on “basic rations” and has their salary and income garnished. But after that, yes they emerge financially new born, having “paid their debt to society”
The only real issue in all of this is how long you make the bankruptcy period. 12 years is too long as evidenced by the practical non-existence of bankrupts in Ireland. If we were back in 2002 and the economy was humming and property prices were increasing, I would have said that the bankruptcy period be 12 months, the same as the UK, or maybe even 9 months so as to build a bankruptcy tourism business!
However if we adopt 12 months today, I think there will be an unholy stampede for the courts. But if the period is much longer than 12 months, then people might rightly point to the UK and ask why shorter bankruptcy periods are generally only available to the rich who can afford the dislocation of moving to the UK, establishing a centre of main interest and then applying for bankruptcy. Also let’s face it, we own the banking sector which we will need bailout again if the losses resulting from write-offs of mortgage debt become too great. I would have said two years was appropriate.
@namawinelake – thanks for the response.
1. I can see where you’re coming from. But I would be more inclined to see it as the banks (one of whom by itself is almost always going to be able to carrying the secured creditor vote) are in a position to put a lot of obstacles and hurdles in the path between an individual and eventual bankruptcy. I’m not sure that’s necessarily a bad thing. I wouldn’t like to see people who can actually pay their debts as they fall due go straight to bankruptcy because of a simple deficit between assets and liability; without some sort of balance between jumping through hoops to demonstrate one is a “genuine” bankrupt, a “can’t pay” on the one hand and reasonable expedience on the other, the process could be abused by “won’t pay”s. Of which there are so, so many in this country, in good times and bad.
2. No more than yourself, I’m intimately familiar with Shane Filan’s affairs, but my impression was that even with his earnings from the band he was never going to get out from under the debts he had, at least not within anything like a commercially practical time-frame. Plus I’d be surprised if his right to such earnings was made some part of the pot. As for Madsen, he might be well known, but I’d say that at this stage his infamy outstrips his earning potential in Hollywood.
For making a determination of insolvency, wouldn’t an application of both tests together, cash flow and balance sheet, be the way to determine whether someone can pay their debts? I have huge negative equity (I closed my purchase at almost the exact pinnacle of the market, mid-April 2008!), but I can more than afford to pay capital and interest payments every month from my pay cheque as well as meet my other committments; surely I’m not bankrupt? Now, if I was to get the bullet from my job (perhaps, for dossing on the internet!), that would be an entirely different situation.
3. Your comparison of debt forgiveness to a jail term fro a serious crime struck me as a shade OTT at first, but I take your point. There is definitely a need to move bankruptcy away from the exceptionally punitive model we have at the moment, it’s massively counter-productive, driven as it by a variety of particularly Irish social and cultural issues (begrudgery, the size of the country meaning that burnt creditors will be rubbing up against discharged bankrupts on an ongoing basis, etc.). I happen to agree that 2 years is about right to avoid making it too attractive as an easy way out, without putting people who need it from availing of it.
There needs to be a straight up discharge at the end of that period as well, on the strict condition of complete cooperation and no asset-moving/hiding shenanigans. The ongoing payments provisions post-discharge of the proposed new section 85D of the Bankrutpcy Act are just nonsense, and I do hope that if they remain in the legislation that the courts will only apply them very sparingly. Far better that they come out. They seem to be the product of lobbying by banks driven by the fear of seeing discharged bankrupts making good later and having money that they can’t get their hands on. There’s a cultural inability to undestand what bankruptcy is for.
To sum up, I’d say that where you and I differ is on the degree of rigour to be applied to applicants on the front end.
@Will C
” I have huge negative equity (I closed my purchase at almost the exact pinnacle of the market, mid-April 2008!), but I can more than afford to pay capital and interest payments every month from my pay cheque as well as meet my other committments; surely I’m not bankrupt?”
No you’re not bankrupt, but you are insolvent (assuming you don’t have other assets which would offset your negative equity). Insolvent means your liabilities outweigh your assets. To get from “insolvent” to “bankrupt” involves a judicial process to have your insolvency legally recognised. Oddly enough, as far as I can see, the “old” Irish bankruptcy laws would allow you to pursue bankruptcy whereas the new Personal Insolvency Bill would be an obstacle to you, because of the precondition about entering into a PIA!
Of course you may be more than able to service and repay your debts, but that is a matter of liquidity.
In the US and UK, the test for bankruptcy, as far as I can see, is either insolvency or illiquidity.
Here’s the UK http://www.bis.gov.uk/assets/insolvency/docs/publication-word/guide-to-bankruptcy.doc
The US has different rules depending on the specific state, here’s Oklahoma from ehow http://www.ehow.com/facts_5332372_oklahoma-chapter-bankruptcy-laws.html
And even if you can pay your debts as they fall due, but you are still insolvent, you can still pursue bankruptcy in both the UK and US, as far as I can see. That seems to be an important difference with what is proposed in Ireland.
@NWL
Are you sure the banks have a veto over whether someone declares themselves bankrupt rather than having a veto over the use the other measures in the PISB?
@Jeb
Sadly your comment above is exactly why the situation is getting worse rather than better. Despite the fact that interest rates for those on tracker mortgages have never never been so good in terms of absolute monthly costs and yet still countless thousands cannot afford to pay their way. The normal thinking as a result needs to change.
Your mindset and analysis should in the ordinary course of events make sense however we are no longer living in ordinary times. Politicans and bankers it seems forget this rather inconvienient fact – the good property times ain’t coming back – just ask the Japanese.
In light of this, rules have changed and therefore reliance on the ‘you’ve made your bed so lie in it’ dogma is missing a rather important point and that is we have a structural debt issue, not isolated insolvency cases. A structural issue is where the likes of one of the largest lenders in the commercial property market (BoSI) sold a significant chunck of its book the other day at 17c in the Euro i.e. an 83% discount. Now 83% discounts happen in failed markets. The property market has failed because those who priced the market for a decade mispriced it. Despite the public believing that property pricing is the preserve of estate agents and their ilk, its nothing of the sort. Banks and lenders, when push comes to shove, value and price property.
Property is a credit driven asset market. In this respect it is therefore unique – your analysis suggests that the punters made bad bets and tough titty. This is a mis diagnosis. Banks price property and their share of the error in its pricing cannot be lumbered on the back of price taking consumers when the error is now so clearly a banking one, given that they are are virtually all bankrupt. You maybe correct in suggesting that nobody forced property consumers into the market but given that virtually all consumers in such a market visit it probably once or twice in their lifetime it is reasonable to presume in a Regulated market that those setting the prices i.e. the banks ought to have known the prices being charged were fair an reasonable – the prices were anything but. So much so that the notion of full recourse debt where the error is so widepsread and systemic on the banks behalf is an illusion.
If the banks were still in private control most likely you or the wider public would not bat an eyelid to the idea that principal write downs were necessarily a bad thing. It would be seen as solution to a difficulty. Not today however. Today its seen as one taxpayer getting a break at the expense of another. Its the ownership issue that has most oridinary folk up in arms – but this is not about ownership of the banks its about a fix to the wider economy and the debt disaster that faces us for a very long time will not resolve itself unless we see the wider economic benefits of significant debt write offs, in any fix there will be winners and losers, that’s life. Preventing such a fix as this legislation seeks to do will ensure the crisis continues and we eventually all lose. That’s stupid.
Time is not a healer in this instance as you suggest because sadly the interest clock is ticking significantly faster than the consumers wherewithall to repay the original principal down. This is mathematics not eoncomics.
Regarding the point at the end, almost a footnote, that bankruptcy legislation helps not just individuals, but also broader society… I would say the benefits to the community are not an extra, but the central reason for needing bankruptcy legislation.
If you get people saving and spending instead of throwing good money into an underwater mortgage black hole, then everyone benefits.
Like the example of the car broken down blocking the freeway while your own car is running fine…do we move the broken car to restore traffic flow, or leave it there to punish the owner?
@will c and dreaded estate the bill itself was analysed and discussed previously on here,with some excellent analysis and commentary from “jr”.
https://namawinelake.wordpress.com/2012/06/30/very-few-bankruptcy-tourists-expected-here-as-ireland-fluffs-new-personal-insolvency-legislation/
@Yor B it has not been confirmed which “book” your German friends and American cousins purchased below 20 cents but perhaps not BoSI,appears to be a closer fit with Llyods.
Almost a 100 years ago the IT published a poem by Yeats,it was an attack on the greedy mercantile nature of the bourgeoise Catholics (FG) and their money grubbing ways.It still resonates in modern Ireland just include Labour with FG in attempting to dry marrow from a bone.
“What need you, being come to sense,
But fumble in a greasy till
And add the halfpence to the pence
And prayer to shivering prayer, until
You have dried the marrow from the bone;
For men were born to pray and save;
Romantic Ireland’s dead and gone,
It’s with O’Leary in the grave.”
Yeats,Sept. 1913.
You can’t use Billy “The Cuban” Clinton – he’s one of the guilty ones in this whole sorry affair.
It was on his watch the Gramm-Leach-Bliley Financial Services Modernization Act was signed:
http://www.dissentmagazine.org/article/?article=1229
It was his team that stymied Brooksley Born:
http://www.atimes.com/atimes/Global_Economy/KL04Dj01.html
Both these things not only ensured the GFC but made the fallout exponentially worse.
Clinton arguing for policies to deal with bubblenomoics is like Bertie Aherne saying that Irish banking was fine until Lehmans happened.
Surely this bill will make an unholy mess of the credit unions .What then for bonds and banks?
@john gallaher: I don’t grasp your point about the selling off of Irish loan portfolios. Is it about a kind of moral equivalence?
The selling off and the pricing of these loan portfolios is only a manifestation of the whole state of affairs in this. For example, the pricing of the portfolios reflects what is contained in the personal insolvency legislation – That legislation delivers some degree of certainty that enables them to price the risk involved… Consider if the legislation had much facilitated the walking away from debt… Then, those portfolios would have been sold off for far less price on the pound.
The point in all of this is that there are no magic wands that can make debt disappear. Someone is going to have to pay it. It DOES NOT disappear. Always and ever. So, what is required is to spread that burden as fairly as possible.
With regard to that fairness, there are many things that might be said. One is that renters currently pay more monthly for the same house as a mortgage holder, yet without the protections and privileges afforded to mortgage holders.
So it strikes me as a bit rich to ask renters to assume the burden of mortgage holders. Especially while there still exists in this country a certain contempt towards renters in terms of the protections offered them and the attitudes of property owners in general towards them (“when are you going to be an adult, and buy a house”, or, “what is wrong with my cast off furniture”, etc.).
@Yields or Bust: I fail to understand why of the “countless thousands who cannot afford to pay their way” it is the mortgage holders that deserve special treatment, or even that the problem lies disproportionally here (leaving aside the ‘negative equity’ aspect which has nothing to do with paying their way.). It would seem to me in general, that those who own their property are doing a lot better than others. For example, someone who misses their rent one month is out on the street. That is not the case at the present for mortgage holders. (Indeed, there are many who are taking rent from tenants and not paying their bank, in the expectation that there will be the type of legislation that is being pushed for, eventually.).
Then, why do people hold up this ‘debt forgiveness’ as the answer to all our problems? As the simple panacea that will solve everything?
This is clearly not the case in two aspects.
The first aspect is that the debt does NOT magically disappear. It is only pushed on somewhere else.
The second aspect is that our economic problems run a lot deeper. Our economic problems are institutional, political and social. They lie in social attitudes, psychology and culture. The surreptitious gombeenism. Implicit social and economic hierarchies and the inefficiencies and mis-allocations that stem from that. Educational priorities. Attitudes to property ownership. Attitudes to running a business, particular in sectors like retail. Attitudes regarding duty to society and the role of institutions. Attitudes to employees (reflecting a lot of attitudes to renters). Habits of work. Cultural predilection to the ‘stroke’ etc.
But debt forgiveness for those in negative equity is going to fix all?!
I agree with you that property prices are and were only ever driven by the banks. However, there was (and is) tacit acquiescence right across our society. – From the professional institutions of surveyors, engineers, and others tasked with property related duties in our society. And business bodies like auctioneers, estate agents and many others involved in some way with property investment. I cannot think of one institution that was not complicit.
Also let’s not forget that normal people walked into their local bank to deposit their money, and watched young people come out by them with signed papers for 317,000 and a lifetime of bondage for a bob the irish builder pile of bricks in a field (with a completely ruined ecosystem) in Lucan.
If they had stopped to think for one second they might have thought that was the money they deposited last week. If they had stopped for six seconds, they probably would have realised that it was at least a function (multiple) of the total money that their bank had on deposit.
The notion that all blame can be pinned on the banks is nonsense. The banks were and are merely a part of the whole phenomena that comprise our society. In my view it is quite telling that certain parts of our society now endeavour to ascribe all blame in such a manner.
Note, when I used the term ‘debt forgiveness’ above, I am referring to a spectrum that goes from full responsibility for debt through various degrees of insolvency and bankruptcy legislations, through to full ‘debt forgiveness’ etc.
What we are talking about is whereabouts on the spectrum should we be. For now, I am saying we have gone far enough with the legislation that has been put out there, and there is much cause to resist the push to the end of the spectrum where debt is magically cast off.
This legislation certainly has moved us along the spectrum. It is plenty for the time being.
Nice to see the Government Press Office arriving into the new media domain.
Joking aside though, the comment…
…could equally have been the guiding force during debates on introducing the pub smoking ban or even free secondary school education.
But it wasn’t, and there was a certain leap of faith involved in both these initiatives.
That these two are memorable says much about how often an Irish Government makes a leap of faith [Please nobody mention the bank guarantee!].
The general point is that the type of Personal Insolvency Legislation espoused by NWL requires very conservative politicians to make a rare judgement call and, in their eyes, take a risk. The question we must ask then is, “Will Enda’s advisers allow this…”
@namawinelake – Do you think that people should be able to be apply for bankruptcy purely on the basis of being balance-sheet-insolvent only, without reference to whether or not they are cash-flow-insolvent? (I wasn’t able to reply to your 3.59 post)
@Will C, not sure I recognise the term “cash-flow-insolvent”, but think I understand that you mean “unable to meet scheduled debt payments from income”. I would refer to that as “illiquid”, and insolvent means that your liabilities exceed your assets.
In answer to your question, yes, I believe the very essence of bankruptcy is the resolution of circumstances where a person’s liabilities exceed their assets. And that is how I understand bankruptcy to apply in other developed countries, though there may be a separate route to bankruptcy involving a liquidity test as is the case, apparently, in the UK
Well, there’s the nub.
In the current environment, the majority of those who are really struggling are people who have never managed to get beyond living day to day. ie. acquiring assets (and associated libilities). However, they are expected to pick up the tab for those whose circumstances were (and often are still) better.
Also, let’s recall the primary intention of the bankruptcy process. – It is so that people take risks in business that have potential to benefit their society. It is to foster enterprise in other words. Now in Ireland we have a certain type of business environment that reflects the risk aversion that follows our bankruptcy law.
You cannot just overlook the context of then and now and retrospectively change the rules to such a degree as is being called for here. (a) It is not the original creditors anymore who assume the debt of bankruptcies as is normal (b) We are not talking about a bankruptcy process that fosters enterprise, rather it is to try and resolve the property based negative equity of a certain social strata and generation at the expense of other generations and social strata (c) the primary impetus should be resolution of the big picture economic problems at this time. There is a large degree of duplicitousness in presenting this as a solution to the big picture economic problems.
I really cannot understand this desire to punish someone who has been unfortunate enough to find him/herself and their family in negative equity, i.e. when they are insolvent. What is the purpose of putting them in limbo for three years? What does it actually achieve other than to heap more poverty and despair on to people?
In my opinion, after a Creditors Meeting, there should be a 60-day period (no more) during which time creditors can file claims if they believe that the bankrupt has non-disclosed assets and during which time creditors may also object to being the debtor being discharged provided they have legal grounds. Grounds for objection to discharge should be limited to fraud, ineligible income tax debts, alimony, and child support obligations.
After 60 days following the creditors meeting the bankrupt should receive a copy of a court order that discharges his/her debts. Why should it be longer?
The entry of a discharge order would not affect a secured creditor’s rights in property which was pledged to repay the secured creditor. The secured creditor can always repossess the secured property if it is not paid according to the loan agreement. In addition, the discharge order only discharges debts that “are dischargeable.” Therefore, the order would not eliminate non-dischargeable debts, such as ineligible tax liability, or loans procured by fraud or by abuse of the bankruptcy system. The Order of Discharge would simply states that dischargeable debts are discharged.
Presuming that the bankrupt did not have non-exempt assets, approximately 30 days after the Discharge, he/she should receive another Order stating that their case was closed i.e. the bankruptcy case is over.
It should also be illegal for any employer (public or private) to discriminate against someone who filed bankruptcy.
Now what’s wrong with that? Simple, humane and over in 3 to 4 months. Why should it take longer, other than to satisfy a desire to heap more misery on the less fortunate….. Oh yea, I forgot we’re Irish and it’s in the genes.
It’s nothing to do with punishment or wishing to inflict misery. Get over the trite emotional appeal. I might as well say to you why do you wish to heap more punishment on those who have far greater cash-flow stresses, just no balance sheet to speak of. (What an adult and no assets to speak of?!! Surely short of Irish genes then.)
@Jeb, With respect, it has everything to do with punishment, or more appropriately – chastisement, as in the way punishment is delivered to a child.
The loss is spread to the wider population (through the Irish banks only) no matter what the length of the bankruptcy period might be. Nothing changes with respect to that. It was settled on the night of 29th September 2008 by our political masters and the DoF.
What we are discussing here is the length of the bankruptcy incarceration period – not the fact of the loss which is another issue entirely.
(Regretfully, I miss the point of your comment in brackets)
No, what we are discussing is the incentive to absolve oneself of property related debt. The greater the incentive, the more people will do it. The increased incentivising of that process proportionally adds additional burden to the overall debt burden the state has to deal with. Obviously, that is not appropriate at the present time.
One founding principles of BK in the US is from a 1938 Supreme Court case,
“relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.”
http://supreme.justia.com/cases/federal/us/292/234/case.html
Two recent bankrupts in Ireland are Fitzpatrick and Quinn,both currently efficiently barred from starting and running businesses.Keep in mind they both created tremendous wealth and jobs.
Whatever,ones views on their actions,much still before the courts it’s antiquated,draconian and down right uncivilized NOT to allow a entrepeur a fresh start.If they can raise the required capital find backers why the hell not allow them to start again.
@Jeb regarding any correlation with loan book sales and BK,the buyers typically structure these deals on a IRR basis,with a back end kicker for the promoters.The quicker the money comes back the higher the IRR and the profits for the promoters.If I was a borrower or had a loan in the pool discussed above,simply call them up offer 25 cents,now if you had modern BK legislation they would probably take it.
The “threat” of BK is a commonly used negotiating tactic with opportunity funds who purchased loans at dramatic discounts,the state is allowing off shore hedge and opportunity funds to enter the Irish loan market,do they require or have banking licenses ?
Least the state can do is provide the natives with some amo. to defend themselves.
@Jeb
I suggested above (and by your latest posts I now know I’m correct) that the real issue with you is not a workable solution (as the PIA clearly isn’t) to this problem its the cost of ownership of these God awful banks.
You have indicated above, and rightly so, that no matter what debt is written off somebody somewhere has to pick up the tab, no free lunch and all that jazz. I agree of course, but that is not what the present problem is about – that’s an ownership issue i.e. the equity holders in these banks are now the State/citizens and write offs given to one section of the community will ultimately fall as losses on another, this is well understood, but this is not an ownership issue, this is an issue of putting a fix in place for thousands and growing, per Davy this morning, where a fix (principal write downs) is the only long term solution with any chance of success.
The ownership of these banks became an issue because of a crazy Govt decision but the costs of ownership and long term economic solutions are not the same thing – I think you’ll agree with me here. The losses on these loans and write offs which need to happen should have been borne by the original owners of these institutions i.e. the infamous bond holders and financiers of the banks – the ECB in not allowing this normal risk assuming capital to take its losses have to accept that they should be picking up the tab here and not the Irish citizen. As I suggested above were these banks still in private ownership you would never know what deal your distressed neighbour had entered into with his or her bank, nor would you likely care as bad lending business should be borne by those owning the bank, in the normal course of events.
I understand and have sympathy for many of your views above but it seems to me that that overall tenet of your argument is the unfairness hoisted on you as an owner and as taxpayer – whilst your frustration and indignation is well meaning and absolutely right it doesn’t solve the issue.
The solution here is as described above, losses need to be taken for dire lending decisions by those who made them i.e. the banks and those who obstructed the correct pathway to allow those who should have taken the losses in the first instance have a duty to say we screwed up – hence Draghi’s most recent fig leaf to the Irish Govt to separate Sovereign and Bank debt.
@Yields or Bust
To use that awful phrase, “we are where we are”.
Certainly, I believe that Lenihan’s decision, and the influences he made that decision under, is a chapter that need one day be brought properly to light in our courts. All that followed from that decision and those influences was to a large degree inevitable, and it did not impact just on Ireland, but on the EU and wider world as well (eg. The UK had to introduce measures to stop outflows to Irish banks the next morning).
But understand that it is the dynamic that unfolded under the influence of that decision that created the situation where bond holders and others even across the EU could not be held to account without creating systemic risks that could not possibly be countenanced by anyone responsible in a position of power.
So, things have moved on. It is undeniable that the current difficult situation we are discussing is a consequence of what has gone before. But what also needs to be recognised is that the dynamic of the situation created by Lenihan’s corrupt and malign decision will not stop when the mortgage holders have received “their bail-out”. No, it continues on across and downwards through society, and across generations.
My concern actually is with the unfolding of that dynamic. The pandering to the “where’s my bail-out” sentiment undeniably feeds that dynamic.
I have no problem with proper bankruptcy legislation as I understand its intention to be to foster risk taking by real entrepreneurs and business people. But we are talking about a completely different impetus to it in the context we are presently discussing it in. Also, as I have said above, it is unavoidable that the context of its introduction at this point in time implies a shifting of economic burden that seems to me to be towards shoulders even less well able to bear it.
” But what also needs to be recognised is that the dynamic of the situation created by Lenihan’s corrupt and malign decision”………
@Jeb steady on there,that decision is still a bit murky, Karl Whelan posted a interesting piece this morning,excellently covered as always by broadsheet.ie
“I believe the Irish and wider European public deserve a better explanation of the events of November 2010 from the ECB. The public release of all communications from Mr. Trichet to Minister Lenihan should be part of this explanation.”
http://www.forbes.com/sites/karlwhelan/2012/08/17/the-ecbs-secret-letter-to-ireland-some-questions/
The guarantee was in September 2008, more than two years before this. He fully guaranteed the six main Irish banks. What was going on in November 2010 between the ECB and the Irish government, and the necessities they occurred under, can be directly traced back to the guarantee. I stand by my assertion that it was a corrupt and malign decision. It definitely was not influenced by the ECB or UK or anyone else outside of certain insider Irish establishment figures. It was a decision taken in the name of these self same interests. If you cast your mind back, the next day, the UK and EU were livid. They could not believe we had done this. It introduced a whole new dimension to the crisis. If people are looking for explanations, go back to September 2008 as your starting point and you have the light you need on these events.
@Jeb a bit dramatic and emotional at least you did not use capitals,to describe the late Brian Lenihan as corrupt,perhaps naive or maybe even incompetent,but corrupt is a bit strong.
The current government has little apatite for a decent banking inquiry,easier to simply ‘blame’ Brian Lenihan,they can not even agree on what committee should undertake it.
With the passage of time and ehm ‘shredding’ of documents it will be moot.
His intention was NOT to fully guarantee ‘the six main banks’ it was an attempt to restore confidence and prevent a run,misguided,idiotic,but not corrupt.
Click to access PAC-Report—FINAL.pdf
I said a corrupt and malign decision. I don’t believe it’s dramatic and emotional to deduce that the particular establishment figures who sought to influence him did so in the name of cover-up and another roll of the roulette wheel.
As to Lenihan himself, I don’t believe it was just naivety that left him open to this influence. Rather, he was born and bred to be thus susceptible. He was bred to be a part of the establishment that the decision taken desperately tried to cover up for. He was a product of a social environment that conditioned him to see some things and not others. I’d add too that the public record clearly shows the scant regard he had for telling the truth.
‘Restoring confidence’ was a tall story. The situation was way beyond that. No, it was an attempt at cover-up. It was intended to try and protect certain people, institutions, and the thinking promoted all through the boom. And to try and ensure the continuance of the same logic. Of course, there was self-deception in large measures all round. But that’s the nature of these things.
The last thing we need is an isolated banking enquiry. What we need is an enquiry into the whole political, social and business morass that prevails on this island.
Call that dramatic if you will, but I’ve only looked at what has passed in front of me and tried my best to describe it.
Must say I agree with this. Bear in mind that Ireland had a bank run (Northern Rock) a year before the night of the guarantee and had adequate time and warning to make plans and take action. Exactly why was this breathing space not better used instead of having to make a rushed early morning decision to apply a global guarantee?
@Jeb we have strayed way off topic and NWL puts considerable work and effort into these posts, apologies NWL.Will leave it with more waffle,nonsense and general incompetence from your fearless leader.
“I take it the Deputies’ questions arise from my remarks in the House on 12 June when I was critical of the previous Government’s handling of the decision-making process in the run-up to and on the night of the bank guarantee. I continue to have these concerns which I believe to be well founded and widely shared. My remarks were intended to highlight the remarkably small volume of documentation held in the Department of the Taoiseach from the night of the bank guarantee, which bears out these widely held concerns. I did not intend to suggest I had evidence the documentation relating to the bank guarantee had been destroyed or otherwise removed. I have since clarified the position on the record of the House in response to a question from Deputy Michael McGrath.”
Actually yes he did!
http://debates.oireachtas.ie/dail/2012/07/17/00015.asp
@Jeb, I think that you credit our politicians with too much intelligence. The guarantee was a typical Irish “cute hoor” stroke. Bar-room economists and economics pulled together and initiated before anyone else, who might begrudge all those lovely deposits flowing in to our “State guaranteed” banks, could stop us. Just a typical amateur cock-up , cheered on by the “cute hoors”.
No more, no less.
(Although, despite his protests, I still believe that it was the brainchild of David McWilliams.)
As we can see it’s easy to stay on the ‘diminished Celtic Tiger’ roundabout when it come to Bankruptcy. Bankruptcy should be viewed independently of local historical issues and perhaps better viewed from the perspective of ‘what make good simple law?’ that will be an asset to society in the long run.
… in the long run banks will be more prudent as to who they lend to and how much if effective bankruptcy laws exist that get a debtor back to 0 ASAP with the creditor receiving all of the debtors assets (excluding pension entitlements). Good Bankruptcy law automatically enforces good prudence within the financial sphere.
I can understand the emotion behind some of the comments on here associated with Sept ’08, can pay-wont pay etc etc. Although unavoidable, is it a distraction from properly analysing effective bankruptcy legislation?
Bankruptcy should be available to all regardless of size and type of debt – look at our Company Law and how it deals with examinership/receivership/liquidation (matter of factually and aggressively with regard to time frames). This bill is call ‘personal insolvency’, the person is not in control within this bill.
Bankruptcy is about getting back to Zero ASAP, debtor loosing all assets to creditors and for the creditor to do what they wish with the assets; the time-frame is largely irrelevant and has been politicised so as to be seen as ‘not being an easy way out’. Like existing Company Law, it should be ASAP.
There is nothing nice about having to personally face up to financial errors, disasters & woes, but face up to them we have to; good law should enable that to happen in THIS state. The current proposals are woeful, the Dail ‘debates’ are obviously political and party not people serving – they leave a huge sense of disappointment and so far missed opportunity. I’m personally disgusted at Alan Shatters political jibe at Eamon o’Cuiv statement which included a fair and rational reference to ‘suicide’ as an associated issue. Uncalled for Minister.
@Jeb,
The banks have already made allowances for the financial losses suffered by their clients. The Irish taxpayer is already on the hook for those losses. The part that is missing is that those same banks have not yet passed the benefits of their restructuring on to their damaged clients. They are trying to hold those benefits for themselves.
Who would you have decide who is worthy to receive the benefits of bankruptcy and who should be denied those benefits? It is not something that anyone enters into lightly, but I reiterate, it is not necessary to punish those who are unfortunate enough to have to enter it.
In more enlightened times, maybe 50 years from now, people will ask why the bankruptcy process should take longer than 60 days. As yet, as a nation we do not have the generosity, and our politicians do not have the courage to ask the same question.
The purpose of bankruptcy is to give a “fresh start” to honest, hard-working, but unfortunate, people – not to chastise them, or make it difficult for them to escape from impoverishment.
But, don’t take my word for it.
Here are quotes taken from actual U.S. Supreme Court cases over the past century:
“The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor’.” (Year 2007)
“The central purpose of the [Bankruptcy] Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” (Year 1991)
“One of the primary purposes of the Bankruptcy Act is to ‘relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start a fresh free from the obligations and responsibilities consequent upon business misfortunes’. This purpose of the act has been again and again emphasized by the courts as being of public as well as private interest, in that it gives to the honest but unfortunate debtor…, a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.” (Year 1934)
“It is the purpose of the bankrupt act…to relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.” U.S. Supreme Court (Year 1915)
Not one judgment states that the process should be a lengthy one, the thrust of the judgments is that the Bankruptcy Act is there to remove the oppressive weight of indebtedness, not prolong it.
JR wrote “in the long run banks will be more prudent as to who they lend to and how much if effective bankruptcy laws exist that get a debtor back to 0 ASAP with the creditor receiving all of the debtors assets (excluding pension entitlements). ”
It says it all.