FLAC suggestions to Oireachtas Committee on bankruptcy term
9 July 2015
Legal rights group FLAC today noted a report from the Joint Oireachtas Committee on Justice, Defence and Equality proposing that the term for bankruptcy reduced from the current three years to one year. The Committee had consulted openly on the issue and received more than 100 submissions from organisations and individuals, many of them personal testimonies of how bankruptcy had affected people’s lives.
FLAC put its concerns on the issue to the Committee in a submission in June. Our main observations were:
- Bankruptcy should aim to get people back on their feet as quickly as possible. Over-emphasis on the punitive element of bankruptcy ignores and absolves the role of reckless lending in personal debt, and hinders the country’s economic and social recovery.
- A study on consumer protection conducted by the London School of Economics for the European Commission in 2012 suggests a best practice regime whereby ‘discharge should occur one year into a three year payment plan, aligning discharge at the lowest common denominator whilst still ensuring creditors have access to excess earnings for three years’.
- For those in unmanageable personal debt, who have been unable to reach an insolvency deal that allows them to keep their family homes, the length of bankruptcy is a final and extreme burden after a harrowing process that will have reduced or removed most of their assets and earnings.
- Further, a short discharge period may impact pre-insolvency negotiations which often end up in the forced sale of the family home; it may encourage write down of un-payable debt, thus avoiding sale of the family home and subsequent bankruptcy entirely.
- To address the ‘moral hazard’ argument and to deal with those few individuals who act in bad faith, our legislation does provide for extension of the bankruptcy term. Section 85A of the Bankruptcy Act 1988, as inserted by Section 157 of the Personal Insolvency Act 2012, allows the Official Assignee or a creditor to apply to the court to extend the term of a bankruptcy from three to eight years in the event that the bankrupt has failed to co-operate or has failed to disclose assets.
- The law also provides for income payment orders after bankruptcy of up to five years. If the term is reduced to one year, FLAC suggests that the duration of these orders should be cut to three years, as is the position in the UK. These income payment orders can commence at any time during the bankruptcy and while it is normally envisaged that they begin with the bankruptcy period, they can in fact be made on the final day of discharge, which would extend the repayment period significantly
- On the threat of increased bankruptcy tourism following any reduction in the term, FLAC argues that establishing a new centre of interest, as required under bankruptcy law, is not trivial in any circumstance and it could be said the current situation is already giving rise to this phenomenon.
- FLAC (Free Legal Advice Centres) is a human rights organisation which exists to promote equal access to justice for all. FLAC is an NGO that relies on a combination of statutory funding, contributions from the legal professions and donations from individuals and grant-making foundations to support its work.
- FLAC offers basic legal information through its telephone information line (1890 350 250) and free legal advice through its network of 80 volunteer evening advice centres – more at www.flac.ie/help/. It also campaigns on a range of issues including consumer credit, personal debt, fairness in social welfare law, public interest law and civil legal aid. FLAC has issued numerous analyses and policy statements calling for a fairer mortgage arrears resolution process.
- Updates on FLAC’s policy work and comment on personal debt issues are at http://www.flac.ie/priorityareas/debt-law-reform/
- The Joint Oireachtas Committee has issued a press statement on the report at http://www.oireachtas.ie/parliament/mediazone/pressreleases/2015/name-29090-en.html . The full report is at http://www.oireachtas.ie/parliament/media/committees/justice/Bankruptcy-Report-for-publication.pdf
- You can download FLAC’s submission on the matter from June 2015 http://www.flac.ie/publications/submission-bankruptcy-discharge-term/