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Government's new debt regime may allow mortgage debt to be written off

The cabinet has approved a draft Bill allowing debts to be written off outside of court, while bankruptcy rules are also changed.

Updated, 12.50

THE CABINET has given its approval to a new draft Bill which it claims will give financial institutions a greater incentive to assist struggling mortgage holders in writing off some of their debts.

Ministers yesterday approved the draft heads of a Personal Insolvency Bill which aims to radically overhaul Ireland’s insolvency legislation by offering new methods for debts to be settled outside of the courts.

Justice minister Alan Shatter said the Bill would be particularly important for assisting people who were “in unexpected difficulties as a result of the current fiscal, economic and employment conditions”.

“When enacted this legislation will be one of the key legislative instruments for addressing the financial difficulties of general insolvency – mortgage debt and negative equity,” he said.

Personal Insolvency Arrangement

Under the proposals, a person can enter a ‘Personal Insolvency Arrangement’ (PIA) if they are insolvent and if a Debt Settlement Arrangement was not likely to bring the debtor back into solvency.

A person in a PIA would then have their debts taken over by a trustee who will propose a deal with creditors which could allow the person to write off debts of between €20,000 and €3 million.

PIAs would have been supported by two-thirds of a person’s creditors, however – meaning that most struggling mortgage holders would still effectively be relying on banks to approve the write-off of the debt.

Separate rules in the new legislation govern how people with certain types of debts under €20,000 can apply for a ‘Debt Relief Certificates’ which will see those debts dropped if they cannot be repaid after a 12-month ‘freezing’ period.

Among the other matters proposed by the Bill are amendments to Ireland’s bankruptcy laws – reducing the automatic discharge period from 12 years to 3.

That discharge may still be delayed by the courts, for up to eight years, if they feel that a person has been “non-compliant, fraudulent or dishonest behaviour” by the bankrupt party during the process.

The draft edition of the Bill has now been forwarded to the Oireachtas’s all-party Justice Committee, who will offer feedback on the bill next month.

The fully-drafted version of the Bill will be published by the end of April, in line with the government’s commitments under the EU-IMF programme.

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