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Irish Insolvency since 2010

At the beginning of 2010 we were looking at the birth of NAMA and wondering what the government might do to help individual consumers who found themselves facing personal insolvency.

There was a frenzy of activity as banks, builders and government finalized the commencement of the implementation of NAMA. All the talk was of how the government was ‘bailing out the banks’ and people wondered what reliefs might be introduced for individuals. The main players in the mortgage market at that time were almost invisible in terms of seeking to repossess homes, even where mortgage re-payments were substantially in arrears and the government at the time imposed a twelve months moratorium on such repossessions by banks and other lenders which it had ‘bailed out’. The so-called ‘sub-prime lenders’ were not constrained in this way and could remorselessly pursue their security through the courts.

The mountain of unsecured debt in 2010 was compared to a giant floating iceberg where only the tip of the problem was visible. Some of the statistics at the time were nevertheless compelling with at least 2.5 million credit cards issued by Irish institutions and 90% of credit card companies failing to check the income of applicants. We estimated spending in Ireland on credit cards at that time at €12 billion per annum and we estimated private sector credit supply at €375 billion. At that time, mortgage lending was estimated at just €150 billion.

We reported the increasing numbers of Irish consumers who were finding that they were insolvent with quite a diverse range of contributory factors triggering this state: a relationship break-ups; unemployment (then almost 13%); underemployment due to only part-time work being available; freeze on overtime or on shift working; illness – self, spouse, partner or child; business failure; fall in house prices & therefore insolvent on the basis of asset value; lack of credit such as working capital & therefore insolvent on a cash flow basis.

We described the non-financial effects of such enormous personal debt on people as increased stress, aggravated health problems, shame and stigma, loss of profession and even an increased risk of self harm. The strain on couples and families resulted in break-up, separation and divorce.

We described the impacts on society as increases in poverty and crime, reduced productivity and work performance and the inhibitions, obstacles and barriers to the development of an entrepreneurial society.

In early 2010, people were looking to the government to put in place a framework to enable them to address their unsecured debt problems and to be able to do so in a finite period of time, short enough to give hope and to be meaningful and not a life sentence.  The hope was that the government would implement the key recommendations made by The Law Reform Commission of Ireland (LRCI) in its consultation paper ‘Personal Debt Management and Debt Enforcement’ which was published in September 2009 and put appropriate legislation in place which would mirror the legislative regimes in the UK and other EU countries where a large number of modern enlightened solutions were available at reasonable cost to the consumer.

So what happened?

The personal insolvency legislation was finally enacted two years later at the end of 2012 in the Personal Insolvency Act 2012. It introduced three new solutions for the personally insolvent and also made some significant changes to the existing bankruptcy laws. During the course of 2013 the Insolvency Service of Ireland or ISI was set up and the infrastructure for implementation of the new laws was put in place and Personal Insolvency Practitioners were authorized and licensed to practice. Unfortunately, the government made some crucial mistakes in the legislation, chief of which is now recognized as their obsession with crossing too many ‘T’s and dotting too many ‘I’s. The legislation is simply too fussy and detailed and seeks to cover every possible eventuality and circumstance. The three new solutions were supposed to be ‘non-judicial’ but of course one of the first things you have to do to avail of either of the two major solutions – the DSA or Debt Settlement Arrangement and the PIA or Personal Insolvency Arrangement – is to run along to the courts and obtain a ‘Protective Certificate’. While the role of the courts is generally of a ‘rubber-stamping’ nature, nevertheless it is an additional layer of cost which the unfortunate debtor has to bear. It is now 2014 and the number of solutions accepted by creditors is still incredibly low – only one DSA accepted during 2013 and not a single PIA accepted. While the ISI expects a surge in activity in 2014, the slow rate of uptake has forced the government to seek ways of simplifying procedures and it looks like the first ‘simplification’ will be the introduction in 2014 of what is described as a ‘protocol DSA’.

To find out more about all aspects of insolvency and the complete range of available financial solutions in your jurisdiction, please contact National Debt Relief.

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