Personal Insolvency Bill: Second Stage

21.11.2012

http://tinyurl.com/csoghxs

Senator Zappone

I welcome the Minister. I also welcome the long-awaited legislation which is desirable for many reasons, some of which the Minister outlined in his speech to us, but in particular as protection of the principal, primary residence in the various new schemes.

  There is still room for significant improvement in the Bill. The Minister indicated that was the case, in particular in order that the many people who are over-indebted and in need of relief can get their lives back on track. This is a key opportunity. No doubt the Minister believes that is the case as well. Senator Bradford referred to the potential of the Bill to boost an economy that is gripped by unsustainable debt and also its tangible and positive implications for the many ordinary families, house owners and individuals who have been crippled by personal debt.

  The first of the many issues I wish to raise relates to essential income and reasonable expenditure. The Minister referred to it in his speech to some extent. One of the positive aspects of the Bill is its reference to the fact that the new insolvency service will draft guidelines on reasonable expenditure and essential income for debtors to which non-judicial debt settlements must refer and to which the courts must also refer in bankruptcy situations. That will help considerably to having regard to the financial reality of individual circumstances, as the Minister identified in his opening remarks.

  I have raised in this House in the past the excellent work of the Vincentian Partnership for Social Justice in the past 12 years to develop and implement a robust methodology to determine a minimum essential standard of living for various household types. More recently, it developed a tool to assist policy makers and others to do that. It is a methodology that has taken into account practice in various EU states. Its work on minimum income standards in this country could be used as a benchmark by the insolvency service when drafting guidelines. However, it would be preferable that such standards would be encompassed in primary legislation.

The question of the minimum income which a household is entitled to retain before payments are made to creditors, is not a matter that can be left to administrative discretion alone. Practitioners will need detailed guidelines and evidence-based tools, which are now available, in order to properly formulate proposals.

  I wish to address the issue of qualifying thresholds. These are outlined in each of the new arrangements. Some of them may appear to lack an evidence-based understanding of the needs of individuals for whom debt relief arrangements are essential. As the Minister identified, section 24 sets a maximum limit of €20,000 for qualifying debts before a debt relief notice may be granted. FLAC works with many clients of MABS. It has estimated that only 15% of these clients would qualify for a debt relief notice under this threshold. FLAC calls for the Bill to raise the qualifying amount to €30,000. Similarly, the legislation should differentiate between essential household equipment and appliances and items of personal property when determining the asset limitation currently set at €400. It may also be helpful to include assessment guidelines in this regard. The qualifying threshold of no more than €60 net disposable income per month, is problematic, as it leaves little margin for non-household-based expenses and payments. This is particularly significant, given the recent survey by the Irish League of Credit Unions which recorded that up to 47% of Irish adults live on less than €100 a month after the bills are paid. The qualifying thresholds set out in the debt relief notice contrast sharply with the threshold of €3 million in the personal insolvency arrangements. The high threshold has drawn criticism from many areas, including the troika which advocated a threshold of €1 million in order to rebuild what it describes as a viable banking system. The ostensible purpose of this section is to protect families in financial distress and to ensure they do not lose their incomes. However, with the average mortgage being in the region of €350,000, this threshold is particularly high. I ask how those thresholds have been determined.

  The definition of insolvency may also warrant some amendment, should a person be deemed not to be insolvent and unworthy of a debt relief notice strictly according to the limits on income, debt, property and timeframe to pay back debt, as outlined in the Bill. People may not be able to repay their debts in full as they fall due. They may need more time to pay these debts. Inability to pay in full is over-indebtedness which with the rescheduling of payments, may work itself out over time, but which may fall short of insolvency. For a practitioner to have to certify that there is no likelihood of the debtor becoming solvent within five years of the date of declaration, also seems to involve a forecast of certainty that would appear neither necessary nor desirable. Perhaps a more flexible definition of insolvency could be drafted, such as, the debtor being clearly unable to pay his or her debts as they fall due and it is unlikely that he or she will do so for the duration of the repayment plan as certified by the personal insolvency practitioner.

  The Minister and other colleagues have referred to the issue of veto. It seems that in all three new arrangements, creditors may object immediately to the inclusion of debts owed to them in the debt relief agreement, in the case of a debt relief notice through the Circuit Court, in the case of debt settlement arrangements and personal insolvency arrangements. In all three cases, creditors may initially agree but then raise objections during the period of the arrangement. There is no provision for an independent arbiter to assist individuals and banks to reach agreement, nor is there an independent appeals system, to which Senator Byrne has referred, for when a proposal is rejected. Therefore, individuals are left with no option but to resort to bankruptcy in many cases.

  The Bill relies far too heavily on a hypothetical and unrealistic assumption that credit institutions will behave rationally and with due care for the well-being of society when involving themselves in credit negotiations with over-indebted clients. There is little evidence at present that they would act in the interest of the taxpayer, the economy and even their shareholders and stakeholders, in acknowledging that in many instances, much personal debt is now substantially irrevocable.

  I wish to speak briefly about the resourcing of MABS. As the Minister indicated in this contribution, MABS is intended as one of the main approved intermediaries for advising, assessing and assisting individuals who wish to apply for a debt relief notice. There are considerable training and resource implications for MABS as a result of this role. The staff of MABS will also have an important role in the referral of clients to personal insolvency practitioners and in liaising on behalf of those clients. This comes at a time when MABS is under significant pressure - as the Minister is aware - with an increasing and diverse range of referrals. It is imperative that its new functions are carried out without a consequent reduction in its existing services. The work of assisting people who are over-indebted and need to renegotiate payments but who are not fundamentally insolvent, must also continue. It is, therefore, only logical that MABS will require additional resources to meet these challenges and sufficient additional resources should be available to MABS to ensure that existing crucial money advice and budgeting services continue and can take on this extra role.

  I understand that no regulatory impact assessment of the consequences of this new insolvency architecture has been published. Could we expect a publication of this assessment before the Bill reaches Final Stages?

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