Ireland starts to get insolvency right

We are finally just starting to get our act together on insolvency.

Up to a couple of years ago, Ireland’s way of dealing with bankruptcy was Dickensian and ludicrous.

The period involved was a penal 12 years.

And there were few bankruptcies – because, incredibly, it cost so much.

People who, by definition, had no money were expected to come up with thousands of euro to pay for bankruptcy. Not surprisingly, few did.

And tens of thousands of people swamped with debt during the financial crisis had no way out.

Some went to the UK, where bankrupts can be discharged debt-free within a year.

Yet, most couldn’t afford that and problems were left to fester at great personal cost to debtors and without much gain for creditors.

Since then our insolvency regime has gone from the harshest in Europe to one of the most sophisticated with four options for those in financial trouble (see table).

The cost of filing for bankruptcy has also been slashed to around €270.

In 2013 the bankruptcy period was cut from 12 to three years.

And under new legislation approved by the Cabinet this week it will come down to just one year.

There is real concern that the 12-month term may be too low and was pushed through as a desperate pre-election ploy to appease the beleaguered Labour Party.

Chris Lehane, the official assignee who oversees Irish bankruptcies, has warned of the risks of ‘moral hazard’.

He feels people will be tempted not to pay back debts because they’ll have a relatively short-term bankruptcy escape route.

No one knows more about bankruptcy here than Mr Lehane and it’s odd that his views, echoed by other credible experts, seem to have been overlooked in the new legislation.

However, it does also get tougher, where it needs to, on bankrupts who conceal assets from creditors (usually those with valuable assets to hide.)

Anyone guilty of serious non-cooperation could see their bankruptcy term increased to a penal 15 years (from 8 currently).

Other welcome changes to insolvency legislation from a debtor’s point of view have recently come into force.

Banks can no longer get away so easily with their veto on Personal Insolvency Arrangements (PIAs), a less severe solution than bankruptcy, which, importantly, can include mortgage debt.

Where creditors, usually banks, reject a proposed PIA, insolvent debtors can now seek a review by the court in certain cases.

Most people in financial trouble fear going to court but in fact courts are usually sympathetic to their plight whether in a repossession or insolvency hearing.

So this move is quite consumer-friendly. It’s also significant due to the growing prevalence of PIAs.

In the third quarter of 2015, there were more PIAs (309) than the other three insolvency options put together, including bankruptcies (83).

Out of 352 (preliminary) protective certificates issued by the ISI in the quarter, 295 (83%) were also for PIAs.

So, increasingly, this is proving to be the preferred insolvency solution.

Applications for a PIA can only be made through a Personal Insolvency Practitioner (PIP) who can be contacted through the ISI’s website or its helpline - 076 106 4200.

Being unable to pay your debts can be a desperate and frightening ordeal.

But at least, for debtors, there are now several insolvency options and light at the end of a tunnel that’s not nearly as long as it used to be.