Niall Collins (Limerick, Fianna Fail) | Oireachtas source

Fianna Fáil will be supporting this Bill. The legislation reduces the bankruptcy term from three years to 12 months which is a very short period. It will not go unnoticed that less than three years after reducing the bankruptcy term to three years we are reducing it further. While it brings us into line with Northern Ireland and Britain it does mean that our bankruptcy laws will be out of line with most other jurisdictions. We hope there are enough protections in the Bill to prevent abuse by rogue business people. We have to learn from the past when some individuals got away scot free with reckless activity. The need to match this Bill with stronger legislation on white collar crime cannot be understated. On balance, however, we accept the Bill and will support it.

Last week the Cabinet rushed to get this bankruptcy Bill approved with a meeting taking place over the phone to approve the new legislation. Approval was required by Wednesday of last week to ensure the legislation would be enacted by Christmas.

Earlier this year in the Dáil the Minister for Finance, Deputy Michael Noonan, poured cold water on proposals to reduce the current term for discharge from bankruptcy from three years to one. In response to questions from Deputy Michael McGrath he stated:

Currently there is a lack of analysis of unintended consequences around further reducing the bankruptcy term to one year. I would be concerned that if we act in haste on this issue, without having conducted rigorous analysis of the objectives and impacts of such a change, we may not achieve the best outcomes for entrepreneurs or private individuals.

Despite his warning about acting in haste, the Attorney General was told just two weeks ago to draft a Bill.

On the aims of the Bill, it includes five key provisions: it reduces the automatic period for discharge from bankruptcy from three years to one; it reduces the term of bankruptcy payment orders from five years to three; it provides that where the family home has not been sold by the official assignee after a three-year period, it will revest in the bankrupt person; to increase the sanctions for those who fail to adequately co-operate with the official assignee during the bankruptcy process; and to abolish the practice of the statutory sitting, whereby a bankrupt person was obliged to attend court after the adjudication of bankruptcy and make a full disclosure of his or her property.

Section 85 of the Bankruptcy Act 1988, as amended by the Personal Insolvency Act 2012, provides for automatic discharge after three years. The change to the bankruptcy term smacks of a last minute attempt to create a semblance of something being done. Families who are struggling to repay their mortgage need far more done to help them to stay in their homes.

For four years the Government resisted taking action to remove the bank veto. Following further questioning in the past month by Fianna Fáil, the Minister for Justice and Equality signed the commencement order this week for all remaining provisions of the Personal Insolvency (Amendment) Act. Not one family has, as yet, benefited from this provision owing to the delay in signing the commencement order.

There is the prospect of EU harmonisation of bankruptcy arrangements. The European Commission, in its recommendation, dated 12 March 2014, on a new approach to business failure and insolvency, suggested entrepreneurs should be discharged after three years. The cornerstone of any bankruptcy system should be fairness, not only to debtors who become bankrupt but also to creditors who have had their debts included in a bankruptcy. It should also be proportionate in striking a balance between the rights of creditors and the needs of debtors to seek relief from their unmanageable debts.

According to the Association of Personal Insolvency Practitioners:

The financial failure of some consumers is an inevitable part of any modern credit-based society and can arise for a number of different reasons: economic downturn, unemployment or illness. Often the media highlight the irresponsible or feckless behaviour of some debtors, but in our experience these examples are the exceptions to the rule and are unrepresentative of the majority of debtors.

I will now deal with the arguments in favour of reduced bankruptcy terms. A one-year term would make the financial institutions engage more with debtors in reaching meaningful solutions and encourage further engagement with the debt settlement arrangement and personal insolvency arrangement processes. It would pass on the benefits of economic recovery to all citizens by allowing people with crippling levels of debt associated with credit obtained during the economic boom to move on from that debt. This would allow the debtor to return to economic normality much faster. It is necessary to aid the economic recovery of the State and enable many of those caught up in bankruptcy to become positive contributors to the economy as quickly as possible. Commercial and consumer debts running to billions of euro have been sold to various funds and further sales are due to take place. It is difficult to predict how tough these funds will be on debtors in the future. Changing the bankruptcy term to one year would generate a more level playing field. It is important that appropriate safeguards be put in place to address situations where the bankrupt is not co-operative or acts in bad faith.

There are arguments against reducing the bankruptcy period to one year, as follows. The view was expressed to the justice committee that looked at this issue that the reduced time period of one year would make it too easy for the bankrupt to defer asset and income acquisition until after the expiry date. In addition, newer debt solutions such as the PIA or debt settlement arrangement would become less attractive. An alternative would be that the official assignee be given the right to apply to the High Court to discharge the bankrupt earlier. This would occur where the bankrupt had co-operated with the process and there was nothing further to be gained by enforcing the full period of three years. The official assignee is concerned that if a change to one year was made, Dublin could become the bankruptcy tourism capital of Europe and that the Insolvency Service of Ireland would not have adequate resources to handle the extra work arising therefrom. However, if the Irish courts were to adopt the same robust approach as in Northern Ireland, Dublin would not be as attractive to Europeans seeking bankruptcy.

Mr. Brendan Burgess of www.askaboutmoney.com was quoted as saying:

There is a danger in reducing the bankruptcy period to a fixed one year that people may game the system as the term is so short ... The current widespread existence of deep negative equity is temporary and will not persist forever. With house prices recovering and with more conservative lending, it will probably be rare in a few years' time to find a borrower in deep negative equity. It's important to design legislation for the long term and not just for today's problem.

I also wish to quote Lisduggan District Credit Union which has stated the one-year term:

would constitute too easy a channel for individuals to enter in order to avoid having to take reasonable responsibility for debt incurred. In the case of a credit union, such a debt represents other members' savings and it is only equitable that there should be some level of endurance undergone before such funds have to be written off.

From a debtor perspective, while a reduction in the bankruptcy discharge term to one year might seem attractive, bankruptcy retains some severe disadvantages and restrictions and is not to be entered into lightly. Proponents of a reduced discharge period cite the increased probability of the bankrupted person retaining the family home, but this flies in the face of the following facts:some 75% of bankrupts end up losing the family home; the bankrupt is a persona non gratawith banks, will lose his or her bank account and credit cards and is disbarred from seeking credit in excess of €600; the bankrupt's credit rating is effectively destroyed; the bankrupt may lose his or her job due to bankruptcy status and may well be disbarred from seeking certain forms of employment; and the bankrupt may not become a company director for the period of the bankruptcy. It is clear, however, that reducing the bankruptcy term would not solve the mortgage arrears crisis, despite the impression one might get in listening to some commentators. Nothing could be further from the truth. Reducing the bankruptcy term is one element of a far wider programme of measures needed to deal with families and businesses in financial difficulty. Over 38,000 families have been in mortgage arrears for more than two years. The reality is that bankruptcy will not be a silver bullet for most of them.

Earlier this year the Minister for Finance said that of those who had a family home and were declared bankrupt, approximately 70% would lose their home. They become homeless and have to seek social housing from their local authority as a result. Bankruptcy may be suitable in certain circumstances, but it is not a solution for the vast majority of households whose primary financial difficulty relates to being in arrears on a mortgage. What is really needed are proposals to reduce the number of home repossessions to a minimum. Fianna Fáil provided the Government with a template in the Family Home Mortgage Settlement Arrangement Bill 2014 which would have adapted the under-utilised insolvency service to allow a dedicated mechanism for dealing with the family home. For four years the Government resisted taking action to remove the bank veto. The change to the bankruptcy term is a last minute attempt to create a semblance that something is being done. Families who are struggling to repay their mortgage need far more done to help them to stay in their homes.

A new Central Bank report which looks at the causes of long-term mortgage arrears shows that, for those in long-term arrears, the amount by which they have fallen behind in their repayments is increasing in over 80% of cases. This indicates that there is a large cohort of mortgage borrowers who have not had an adequate payment restructuring plan put in place. This timely research from the Central Bank clearly highlights that the current approach being taken to dealing with serious arrears cases has not worked and is never going to work. It is completely unsurprising that high variable interest rates have driven many families into long-term arrears, as they typically end up with a mortgage repayment several hundred euro higher each month.

It is also notable that thousands of long-term arrears cases involve a situation where a job loss has occurred or the household has been reduced to a single income since the loan was taken out. Long-term arrears are also more common in households with three or more children.

Bankruptcy is not a solution for most people in this situation as it could involve the loss of the family home. The Government should be forcing the banks to put in place revised repayment terms to give a family a reasonable prospect of paying off their mortgage over an extended period of time.

In particular, permanent interest rate reduction should be used so the monthly repayment is brought down to a manageable level. The Bill is not a substitute, nor does it deal with the wider issue of rip-off mortgage rates, but it can certainly help families in arrears.

Split mortgages, where repayment of a portion of the loan is typically deferred for a number of years, have proven to be far more effective in dealing with arrears situations than simply adding the amount of arrears to the outstanding balance. The Government should force the banks to use this on a far more widespread basis and legislate accordingly if they fail to do so.

Last month the mortgage repossession figures provided another indication of how the Government is ignoring the escalating home repossession crisis. Figures show that up to November a shocking 4,440 repossession orders were lodged in the courts. The banks ramped up their repossession efforts over the past year, with 188 homes repossessed in July to September alone, a 92% increase on the same period in 2013.

The Government introduced the mortgage-to-rent scheme with the view to keeping people in their homes. However, the scheme has been a complete failure with only 2.9% of the 98,137 mortgage holders in arrears actually applying to use the scheme. The success rate of mortgage holders who have applied to the scheme is equally abysmal, with a mere 3% getting through the application process successfully.

More than 15% of mortgage accounts for family homes are now in arrears, which is more than three times higher than the figure at the end of December 2010. The most recent statistics from the Central Bank show that a staggering 117,000 principal dwelling house mortgage accounts are in arrears with almost 60,000 of these in arrears of a year or more. The country is potentially facing up to 25,000 home repossessions next year alone.

Homeless figures for families have risen fivefold since January alone. Three families are becoming homeless every single day and 1,570 children are currently sleeping in emergency accommodation. The crisis will get much worse unless the Government shakes itself out of its slumber and develops coherent policies for keeping families in their homes.

Fianna Fáil is supporting the Bill. I compliment Deputy Penrose who took the initiative and introduced a Private Members' Bill. I congratulate him on his success in getting the Bill sponsored by the Government in here. Many other Private Members Bills, which the Government did not oppose on First or Second Stage, have unfortunately been parked and not brought any further.

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