Luke Flanagan (Roscommon-South Leitrim, Independent)

I understand this Bill forms part of the State's commitments under its agreement with the European Union and International Monetary Fund under which to Government agreed to "introduce legislation to reform the personal debt regime to the Oireachtas before the start of the summer recess, with the objective of increasing the speed and efficiency of proceedings while at the same time mitigating moral hazard and maintaining credit discipline". The Bill does not quite achieve this objective as it falls down in a number of areas. None the less, it is an attempt to tackle the issue of personal debt and, with the appropriate amendments, I am sure we will be able to meet the required objectives.

One in seven mortgage accounts in the Republic of Ireland either has been in arrears for more than 90 days or has been restructured with less than the contracted monthly mortgage payment being made. The country clearly has a debt problem. Last week, I watched a panel discuss rent allowance on the "Tonight with Vincent Browne" programme. The discussion crystalised for me what type of serious debt problems we have. It has been suggested that moving everyone out of landlords' properties and into empty houses would solve the problem of rent allowance. Given that 93,000 people are in receipt of rent allowance, even if the average mortgage on the 93,000 properties held by landlords who rent to rent supplement recipients were only €100,000, moving everyone out of these properties would leave a €9.3 billion hole in the banking system. It is obvious that something needs to be done soon about debts that people cannot afford to repay.

Under our current draconian bankruptcy rules, which involve a bankruptcy period of between five and 12 years, approximately 30 people are declared bankrupt every year. By comparison, 60,000 people are declared bankrupt every year in the United Kingdom, which has a population of 62 million. When one considers that the population of the Republic is 4.6 million, one finds that the UK bankruptcy rate is more than 500 times higher than that of Ireland. Immediate change is needed.

Virtually all the Deputies who spoke referred to people in serious financial difficulty visiting their clinics. We have also heard about the high number of suicides, many of which are connected with financial problems. Like many other Deputies, I grew up in a house where money was short. This places people under severe pressure and they do not have the energy to develop, enjoy their lives or do good in the community. People who are worried about whether they will lose their house or do not know if they will be able to put food on the table find it difficult to go on.

In 2009, the Law Reform Commission published an extensive study into comparative approaches to personal debt. In its 2009 consultation paper, Personal Debt Management and Debt Enforcement, and its final report in 2010, the LRC made a series of recommendations for legislative reform. A key conclusion of the consultation paper was that Irish personal insolvency law was outdated and ineffective, particularly when compared with other European countries. The paper states:

Irish law, unlike the vast majority of its European peers, does not therefore provide access to an adequate and effective personal insolvency system, as required by the Council of Europe's Recommendation on legal solutions to debt problems. The Commission therefore takes the view that a new personal insolvency regime must be urgently introduced in Ireland.

The report of the interdepartmental working group on mortgage arrears, the Keane report, which was published in October 2011, also recommends reform of personal insolvency legislation.

FLAC, the Free Legal Advice centres, has broadly welcomed the Bill. The organisation's director general, Ms Noeline Blackwell, stated: "While the Bill is only for those who are unable to pay their debts in full, it will also help people who need a bargaining chip with their creditors." However, she also expressed concerns about the imbalance of power between banks and debtors and noted that the Bill preserves the creditors' veto in respect of the debt settlement arrangement and personal insolvency arrangement options. The reason for FLAC's concern is clear when one considers that banks and debtors have a veto over the arrangements provided for in the Bill.

They literally have a veto over forgiveness. The very people who got us into this mess in the first place are the same people who will decide whether a person will be let off.

A previous speaker said the banks are also to blame. The reality is the banks are far more culpable than the individuals who took out the loans. People had to take out such big loans because of the lending policies of these banks. In a town like Castlerea, where I am from, no one wanted to pay €200,000 for their house. They had to pay so much because they were competing against developers who got tax incentives. As a result, prices went up. The fact there seemed to be unlimited credit from the banks and the fact they did not know when to stop giving the credit caused the problem, especially in a country where the majority of the people never had two pennies to rub together in the first place. When the banks throw money around, the temptation is to take it, particularly when there is no choice. Now the whole edifice has collapsed, the banks must take responsibility. The fact that 65% of creditors must give the thumbs up before anything is done is hardly fair and does not make sense.

One of the prime reasons for so much money flooding into the economy was the ridiculous arrangement put in place when the euro became our currency. We ended up with the same interest rates as Germany, regardless of the suitability of the arrangement. It certainly made no sense over the last decade. When we needed something to dampen down the economy, we had to put up with interest rates that were used to drive forward the German economy. To say that the people who took out the loans are partly to blame might be true to an extent but they only carry a very small proportion of that blame.

Earlier a Deputy asked where we would get the money from to help these people. I was under the impression the banks were stress tested and in that stress testing, they were supposed to take these debts into account. With one in seven unable to keep up their mortgage payments, it was obvious this was coming down the line. The banks were recapitalised to the tune of €9 billion to deal with this but apparently it is now unrealistic to address the problem that way.

I found two interesting points in opposition to this legislation on the namawinelake blog:

[T]he person seeking bankruptcy must be able to demonstrate that they will not be able to pay their debts over a five-year period. According to the Bill "it is his or her opinion there is no likelihood of the debtor becoming solvent within the period of 5 years commencing on the date of the making of the declaration". So if you are a mortgage-borrower with six months of arrears today and a property which has declined 50% from peak, on what basis can you demonstrate that you will not be able to become solvent in five years? Obviously, it will depend on the future direction of house prices and there is no guidance given in the legislation as to how future asset prices might be determined.

Anyone who can tell the price of a property today is some genius, given property that cannot be sold cannot be priced. How a person will know the value in five years time is beyond me so how is it practical to use that measure? The blog continues:

[T]he person seeking bankruptcy must be able to demonstrate that they have co-operated with their mortgage lender for a period of at least six months and that they have not agreed to any alternative arrangement. The Bill says "the debtor has made a statutory declaration declaring that he or she has co-operated for a period of at least 6 months with his or her creditors who are secured creditors as respects the debtor's principal private residence in accordance with any process relating to mortgage arrears operated by the secured creditors concerned which has been approved or required by the Central Bank of Ireland and which process relates to the secured debt concerned and that notwithstanding such co-operation the debtor has not been able to agree an alternative repayment arrangement with the secured creditor concerned, or that the secured creditor has confirmed to the debtor in writing its unwillingness to enter into an alternative repayment arrangement".

In other words, notwithstanding the fact that you are hopelessly insolvent with massive negative equity, your bank can seemingly stop your bankruptcy bid by providing you with temporary relief on your monthly mortgage commitments.

I am no expert but I can read and what I have read about this points up serious flaws. The banks have the last say, the very organisations that recklessly lent money to people and encouraged them to take more by releasing equity. Now we are all in a heap and people are killing themselves over their debts, what happens? The banks are given the whip hand once more. They are the king and always will be the king in this country as long as we have right wing governments.

See this speech in context