Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

The Deputy's amendments seek to reduce the maximum duration of a debt settlement arrangement from 60 to 36 months and in the case of a personal insolvency arrangement, from 72 to 48 months. I have no doubt that these proposals are motivated by a desire to assist people struggling with debt to return to a more normal situation. However, normality can be a difficult concept to define. The debt settlement arrangement process will allow debtors to enter into a consensual arrangement to resolve debt issues which, in this instance, relate to unsecured debt. In circumstances where, at the end of the period, an amount of the debt may well be forgiven or wiped out, there must be some incentive for creditors to enter into such an arrangement. This is provided by way of a significant specified timeline for some payments to be made. The time provision in the debt settlement arrangement mirrors similar timeframes allowed for the settlement of unsecured credit in other common law jurisdictions. It permits a reasonable period for the debtor to make payments to creditors and receive the likely discount on his or her debts. The Deputy's proposal to shorten the period to 36 months could make it difficult to facilitate the conclusion of an arrangement in many cases. Moreover, it might well be counterproductive in that it would offer a major disincentive to creditors to agree to a settlement.

Similar considerations apply in regard to the personal insolvency arrangement, which is a unique process not replicated elsewhere. The proposed duration period of 72 months is of a reasonable length for the debtor to fulfil the terms, which may include significant debt write-offs by secured creditors. As I have said on other occasions, we are dealing here with debtors whose financial circumstances are extraordinarily difficult, who might be in substantial negative equity and who have no realistic prospect, based on their income and resources, of being able to cope in the near to middle term with their repayments. In some instances - not all, but some - the only way forward for such individuals, both in their own interests and in terms of financial institutions crystalising the reality of non-recoverable debt, will be debt forgiveness as opposed to debt forbearance, that is, the writing off of some level of debt. Where that occurs, there must be an identifiable reasonable period of time during which the new arrangements work and an assurance that payments will be received in the context of the arrangements into which the parties have entered.

We have fixed the durations we regard as appropriate in the context of our debt resolution measures as the best means of ensuring consensus between debtors and creditors. I very much acknowledge the Deputy's position on this issue and the sincerity with which he has made his case. In addressing the problems facing this country, we must not only ensure there is a reasonable relationship between State expenditure and State income but we must, in addition, do everything possible to get the domestic economy motoring to a substantially greater extent than is currently the case and give people who are weighed down with debt a genuine hope of reorganising their lives in circumstances in which their income now and for the reasonably foreseeable future renders it impossible for them to meet their levels of indebtedness. These are clear and important objectives.

We must also bear in mind that this legislation is not simply about those in mortgage difficulties. Its function, rather, is to deal with the broad range of insolvency circumstances in which people may find themselves. The personal insolvency arrangement is applicable where there is a mixture of secured and unsecured debt, while the debt settlement arrangement relates exclusively to unsecured debt. We must incentivise creditors to agree to what are effectively personal reorganisations or recalibrations of the financial circumstances of customers who are in debt distress. In other words, we must incentivise creditors, where it is necessary, desirable and appropriate so to do, based on a full and frank financial disclosure of the income, assets, resources and liabilities of a debtor, to do a deal. Such deals will involve an agreement to a write-off, where appropriate, of a portion of what is due in return for an assurance that the remaining portion will be paid over a reasonable period. For some debtors, two or three years will not be a reasonable period. They will require greater latitude in order to ensure they retain for themselves the funding necessary to meet reasonable expenses, which includes not only their own personal outgoings but, where applicable, those of dependent spouses, partners or children.

The elasticity in this arrangement will be beneficial for debtors. A shorter period, on the other hand, might encourage creditors, even where they agree to some level of write-off, to demand that a larger amount be paid within a shorter period, which might not be financially feasible and could render it impossible for some people to avail of a debt settlement arrangement or personal insolvency arrangement, thus leaving them with no choice but to go into bankruptcy. It is vital that people are not unduly burdened in circumstances where there is no reasonable prospect of their being able to meet their overall indebtedness, but we must ensure there is a period during which creditors are assured of receiving at least a portion of what is due to them. In the case of mortgage debt, where there is debt forbearance over a sufficiently elongated period to allow people to get their finances in order and where that forbearance may involve a discharge of a portion of unsecured debt, there must be the prospect for the financial institution that payments of an additional nature will be made at the end of the five years.

What we are saying here is that if debt forgiveness is granted, there must be some period during which the new arrangement that is put in place is abided by and is seen to work. Take, for example, a household in serious negative equity where there were previously two incomes but now there is only one, and that substantially lower than what it might have been in 2005 or 2006. The financial institution, having examined the household's financial position and taking account of the current property value, might conclude that it is not realistic financially to expect the debtor in question to discharge his or her capital debt in full. The bank will weigh this option against the losses it would suffer were it to repossess the property and sell it at a loss. One of the objectives of the legislation is to ensure that where people who are in financial difficulties are living in properties deemed reasonable in terms of their family requirements, as opposed to large mansions, they must be facilitated to retain their home. We are seeking to ensure that such persons do not fall into bankruptcy and do not lose their home. Under the various options for personal insolvency arrangements that we are providing, there might be some type of incentivised debt forgiveness mechanism whereby, for instance, a debtor complies with an agreement to pay a certain portion of interest and capital in years one and two on the basis that if his or her financial circumstances do not improve, the financial institution will, in year three, agree formally to write off a portion of the capital debt. Likewise, an institution might agree, over a period of five years, to write off particular portions of capital debt.

The timeframes set out in the Bill are reasonable.

I could argue the concerns the Deputy is making, but I do have concerns that may result in creditors not agreeing to arrangements because their perspective may be that if it was more elongated they would recover more. It may act as a disincentive to some creditors engaging. It may force some families and individuals into bankruptcy who may be kept out of that. Some of this is based on human conduct and how people may respond to and deal with new mechanisms. However, as I have said on other issues, we will keep the workings of this under review. We will look carefully at how it is functioning. I would expect the insolvency service to produce a report at the end of the first year as to how things are working. I expect we will have active personal insolvency practitioners who see at the coal face the extent to which creditors, including financial institutions, are co-operating. The issue of the co-operation of financial institutions in this is something that the Financial Regulator is keeping under a watchful eye. We have had reports on the extent to which financial institutions are currently engaging with debtors. In the context of the architecture of this legislation, there will be an overview of the possibilities of agreed debt resolution.

What we have here is practical and reasonable and holds out the maximum possibilities of engaging creditors. I am aware, as is the Government, of the importance of those who are currently weighed down by debt not only having hope for the future but also having some of the burden relieved so they become active participants in the wider economy. That clearly is an important issue but I am afraid that at this stage I cannot accept the Deputy's amendments, although I know they have been tabled in good faith. It is important that we tease this out publicly and discuss it, however, so I thank the Deputy for giving us an opportunity to do so.

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