Dearbhail McDonald: Borrowers taking debt destiny into own hands
THEY are becoming a more familiar sight in the courts, debtors with no legal representation who stand before a roomful of wigged and gowned lawyers and ask to be made bankrupt.
The debtors represent themselves because they cannot afford a lawyer – most have nothing left to give.
Their papers are not in order because they are not used to being in court and, facing the prospect of bankruptcy, have probably little interest in dotting the Is and crossing the Ts on their own debt warrants.
When asked by concerned judges if there is any way they can avoid pushing the nuclear button of bankruptcy, they reply that they have no job, no income and no assets left.
If they are employed, their income typically does not meet the income guidelines set down by the Insolvency Service of Ireland or their offerings are too low to satisfy their creditors. These borrowers are turning a corner, of sorts, by taking their debt destiny into their own hands.
Due to the sheer scale of personal indebtedness in the wake of the collapse of the Celtic Tiger, bankruptcies and repossessions – in significant numbers – are expected.
In some sense they are desired (as in the case of buy-to-lets) if only to bring a certain reality to bear on debts that are beyond redemption or resolution. And to make banks wake up to the reality of crystallising bad debts.
But there is also a deep sense of discomfort about the operation of the new Personal Insolvency Act, which includes a much more debtor-friendly bankruptcy regime.
Many debtors do not meet the ISI's minimum income guidelines, which automatically exclude one of three debt settlement options under the new law.
Others have income, but not enough to live and make repayments that are acceptable to their creditors. That leaves bankruptcy, reduced from 12 years to three years, an attractive option from an admittedly stark menu.
And so bankruptcy, so long the last resort for borrowers, could become the first resort.
The Government's biggest fear is strategic default: that the 'can't pays' will become 'won't pays'. But as borrowers struggle with higher taxes and lower incomes, there is more than a credible risk that if enough people file for bankruptcy, we will reach a new tipping point where bankruptcy becomes a very acceptable, indeed honourable, form of debt settlement.