Sunday 11 December 2016

Insolvency law changes 'won't free bankrupts from all debt'

Charlie Weston, Personal Finance Editor

Published 20/10/2011 | 05:00

Central Bank Governor Patrick Honohan. Photo: Tom Burke
Central Bank Governor Patrick Honohan. Photo: Tom Burke

PEOPLE who get debts written off under new personal insolvency laws have been warned by Central Bank Governor Patrick Honohan that they could still end up paying debts for decades.

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The Government is considering setting the new bankruptcy discharge period as low as just three years.

This means that someone who is declared a bankrupt would end up with all their finances and control of their assets in the hands of a court-appointed trustee, or asignee.

The law has recently been changed to allow bankrupts to be automatically discharged after 12 years.

A further update in the law that came into effect last week means people can apply to be discharged after five years if they meet the expenses of the bankruptcy process and settle with the Revenue Commissioners.

Now the Government is looking at allowing bankrupts to apply to be discharged after three years. This would allow them to control their own finances again.

But Prof Honohan warned that being discharged as a bankrupt would not necessarily mean people would not have to keep making payments.

"A short discharge period does not mean that the agreed repayments would be reduced to three years," he told a conference on financial exclusion.

And Justice Minister Alan Shatter said the Government was finalising a Personal Insolvency Bill which may be available before the deadline of next March.

The Government is still deciding if the discharge period for bankrupts will be lower than five years.

There was also a need to ensure the system is not manipulated by fraudulent bankrupts.

Mr Shatter, speaking in the Dail on Tuesday night, revealed that heavily indebted people with no income, no property and no assets may be able to get a debt relief order under the new insolvency regime.

Debts would be frozen for a year, with no interest accruing. If they cannot pay back the debts at a reasonable amount each month, the debt would be written off.

Non-courts settlement

A non-court debt settlement agreement regime is also to be introduced, but no decision has been reached on whether to include in this secured debts, such as mortgages and car loans.

Banks are understood to be resisting attempts to include secured debts in settlement agreements, arguing that this is how it works abroad.

But Mr Shatter said he was concerned that excluding secured debt would make non-court settlements unattractive and people would opt for bankruptcy instead.

Mr Shatter said he favoured setting up an Irish insolvency service to oversee non-judicial debt settlements.

Meanwhile, the EU yesterday denied it and the Government were pressing banks to allow householders temporarily stop paying part of their mortgages in order to pay down their other personal debts.

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