Dáil debates

Wednesday, 1 April 2015

Ceisteanna - Questions - Priority Questions

Personal Debt

9:40 am

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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4. To ask the Minister for Finance his views and those of his Department on the proposed reduction in the discharge period from bankruptcy; if his Department is planning to introduce new measures to deal with the issue of mortgage arrears; and if he will make a statement on the matter. [13403/15]

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I am seeking the views of the Minister and the Department of Finance on the proposed reduction in the discharge period for bankruptcy. As the Minister is aware, this matter has been the subject of much recent discussion in the aftermath of the publication of a Private Members' Bill by Deputy Penrose. While this matter may relate more directly to the Department of Justice and Equality, I tabled the question in order to give the Minister the opportunity to outline his views and those of his Department, because they are absolutely crucial to the debate on it.

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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While, as the Deputy states, this issue falls within the functional responsibility of my colleague, the Minister for Justice and Equality, Deputy Fitzgerald, he will be aware that the duration of bankruptcy was reduced from 12 years to three in December 2013. Insolvency Service of Ireland data indicate that for all of 2013, 58 people were adjudicated bankrupt by the High Court, whereas in 2014 the number adjudicated bankrupt rose to 448.

It can be anticipated that this number will continue to increase in 2015. This demonstrates that the reduction in the bankruptcy term is having a positive impact as a mechanism of last resort in dealing with distressed debt situations. However, more time is needed to assess the effectiveness of this measure. Recently, there have been calls in the media to reduce the bankruptcy term down to one year, with the rationalisation that this will allow entrepreneurs to regularise their debt situation quickly with a view to facilitating them in establishing a new business. Alternatively, it is suggested that reducing the bankruptcy term will enable individuals to write down debt without having to leave their family home.

Bankruptcy is a big step for borrowers and one that may not deliver the desired result of retaining the family home. It is my understanding that of those who had a family home and were declared bankrupt in 2014, approximately 70% have lost or are expected to lose their home. Banks are the best protected creditors in bankruptcy.

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.

When this analysis has been completed, the Government will then have all the facts on likely consequences, both good and bad, and will be in a better position to make an informed decision on whether the bankruptcy term should be reduced from three years to one year.

Additional information not given on the floor of the House.

The Deputy may rest assured that tackling mortgage arrears is a priority for the Government. A whole-of-Government approach has been adopted in addressing the issue with a view to maximising the level of loan restructuring arrangements and minimising the number of home repossessions. Initiatives such as the reform of personal insolvency legislation and the establishment of the Insolvency Service of Ireland, the introduction of a mortgage arrears information and advice helpline, and the availability of the mortgage-to-rent scheme, ensure that borrowers are assisted in dealing with their arrears.

Significant progress was made in 2014 in restructuring mortgage accounts. Data compiled by the Central Bank on residential mortgage arrears show that the number of PDH mortgage accounts of greater than 90 days is declining. This is, however, an area that remains under continuous review. More and concerted action is required from banks to assist and restructure customers in arrears and, as the Taoiseach has previously announced, my Department is considering a range of options to support the existing framework and improve the uptake of personal insolvency solutions.

9:50 am

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his reply. We are all aware of the dramatic increase in the number of people going bankrupt in Ireland. Many people have gone to the UK to become bankrupt. The Minister has put a number of important facts on the record, including that 70% of those who went bankrupt in 2014 have lost, or will lose, their home as part of the bankruptcy process. It is a pretty sobering statistic for everyone to remember.

I have an open mind on the reduction of the discharge period, but it should not be the solution of choice for tens of thousands of people in mortgage arrears. I do not believe it is, quite frankly, because bankruptcy is a serious measure with significant consequences for those involved. In most arrears cases, there is a joint mortgage involving joint ownership of the property. If both spouses have to go bankrupt, it is not the most efficient way to deal with mortgage arrears. It may well be a worthwhile step for those who have more complex debt arrangements involving corporate and commercial debt, for example, but not for those in mortgage arrears.

The Minister referred to the need for more time to assess the impact of the recent reduction from 12 years to three years. He also referred to an analysis that has to be done. Perhaps the Minister can clarify if a particular initiative is under way to analyse the impact of the reduction from 12 to three years. If so, is there a timeline for completing it?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The issue of reducing the term of bankruptcy from three years to one year is separate from restructuring mortgages, and should be seen as such. By mixing both issues one could end up making a decision which would not be helpful. If somebody has mixed debt, the only institution that has security is the bank because it has the deeds of the home and is underpinning the mortgage. Therefore the banks are in a good position if part of the mixed debt is a mortgage. This is why repossession occurs in so many cases. Most of the repossessions I referred to are voluntary in working out the bankruptcy.

As to the Deputy's precise question, officials in my Department keep these matters constantly under review and will advise me on them. We are not working to a particular timeline, but we are collecting the relevant data. I presume that some of the data will be put into circulation in due course, later on.

If there are merits in reducing the three-year bankruptcy period to one year, as has been done in other jurisdictions, that is a separate policy consideration from resolving the mortgage crisis. It does not resolve the mortgage crisis and, in fact, the data would suggest that persons who enter bankruptcy lose their homes more than people who do not.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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As I have said on a number of occasions, I do not believe people in mortgage arrears should have to go bankrupt in order to have their indebtedness dealt with and to have a restructuring of their mortgage agreed. We need to separate both issues - mortgage arrears and the decision whether or not to reduce the bankruptcy discharge period further. People whose main debt is a mortgage on the family home should not have to go bankrupt. Let us be honest about it, they should not have to go bankrupt to have that situation dealt with. I welcome the Minister's comments in that regard.

The debate on reducing the discharge period has been gaining some momentum, yet the Minister seems to be pouring cold water on it. It would appear from what the Minister has said that no decision is imminent from the Government in favour of a reduction in the discharge period. The fact that 70% of those who went bankrupt in 2014 have lost, or are expected to lose, their family home as part of the discharge of their bankruptcy, is a sobering statistic. People who are advocating a reduction in the discharge period as a measure for dealing with mortgage arrears should bear that statistic in mind.

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The issue of reforming the bankruptcy laws is fairly recent. The former Minister for Justice and Equality, Deputy Shatter, brought in legislation reducing the period from 12 to three years. At the time, the three-year period was not picked arbitrarily. Other options were considered, including the one-year option which is now the norm in Britain and Northern Ireland. Therefore, there has been recent consideration of what the appropriate term of bankruptcy should be in this jurisdiction. Data is now coming through which show how the changes are working out. The clearest change so far is that it has gone from 58 bankruptcies in the last year of the old legislation, to 448 now. There is quite a clear uptake by those availing of bankruptcy under the new terms of the Act.

Not all the implications have been assessed yet, but I welcome the debate. I know that a Private Members' Bill has been published, so we can continue the debate. I do not have a particularly fixed position on it. If another term works better, so be it, but I would like to have it evidence-based rather than change being made for the sake of it and on the basis of a lack of evidence.

Photo of Michael KittMichael Kitt (Galway East, Fianna Fail)
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As Deputy Donnelly has arrived we will now go back to Question No. 3.