The Personal Insolvency Bill has now passed Committee stage in the Dail. There is still time for amendments to be made to the Bill before it is enacted, and we have examined some of the changes that are essential to make the Bill work for those who need it most. Below are some of the suggestions we have put forward to the Department of Justice, in relation to the Debt Relief Notice, which will be applicable for those with debts of less than €20000.
In the UK, a debtor may have ten or more credit cards, with very small limits. The reason for this, taking into account the evolution of the Insolvency Act in the UK, is because the credit card companies are happy to gamble giving someone a credit card with a limit of say £2000, even though they have other cards, as the minimum repayment will still be generally affordable. The UK companies have had to learn this. It is based on a more robust credit referencing system, and has led to a more responsible approach to lending in general.
In Ireland however, debtors generally have a maximum of three credit cards, as well as lower limit store cards and ‘doorstep’ loans. However, because our credit referencing system is way behind in terms of transparency than in the UK, and with the shared blame of over borrowing and reckless lending practices, card companies here would have extended limits well in excess of €10000 per card.
I believe that the threshold should be increased to €30000, as at €20000, the majority who need this strand of the legislation to work for them, will be excluded from the outset.
There is a strong likelihood that the person will remain on social welfare for the duration of the period. In effect, it is locking the person down in a similar way to bankruptcy, and will be a burden on the state for three years.
The costs of the Debt Relief Certificate have not been given proper attention. While the creditor(s) will face a maximum loss of €20000, the costs to the state and the taxpayer, in terms of the social welfare bill could be as much as €60000 per applicant for the duration of the term. This also does not factor in the costs of supervising the debtor over the three year period.
It is impossible for the debtor to contribute towards this, as they already have no disposable income. In contrast, in the UK, it costs £90 to apply for a Debt Relief Order. In most cases the applicant will have tried to save this money for several months, or will have received the fee from a family member or a charity. This goes some way to covering the costs, as the supervisory term in the UK is only 12 months. It will cost a lot more here, to supervise the debtor for three years, and if the debtor is to shoulder some of the costs, the cost of applying for the certificate in the first place will be prohibitive. The costs of any approved intermediary must also be taken into account, whether MABS or another Insolvency Trustee is looking after the debtor.
This is unfair to creditors, and completely unbalances the validity of the certifcate. It may be possible for a creditor to overturn a debt releif notice through the courts if a debtors position improves significantly. My view is that the notice should only be suspended, and the person should be able to then move into a debt management plan, which can be legislated for.
This would require a review of the debtors circumstances, where the Insolvency Service can pass the debtor on to an Insolvency Trustee (PIT), and if the PIT determines that, having assessed the debtors disposable income at say €300 per month, the debtor can then enter into a debt management plan, which may last for two, three or four years. Also, if the employment is short lived, and the debt management plan fails, the debt relief notice can then be re-instated for the remaining term. Someone with a Debt Relief Notice could not enter into a Debt Settlement Arrangement, as their debts would be below €20000.
There is an excellent opportunity here in terms of assisting people to recover, and potentially increase the return to the creditor. If we were to legislate for debt management as another strand to the bill, in conjunction with companies compliant under the EU Payment Services directive, monitored by the Central Bank (also forming part of the upcoming Central Bank Supervisory Bill). It would be an excellent opportunity to then regulate private debt management companies, and the fees that they charge. The debtor would also pay these fees, not the state, from their disposable income, something which creditors will accept if the fees are fair, particularly as they will get some, if not all of their money back. As they will have fully or partially discharged their debts, the taxpayer, the creditor, and in fact the debtor would all be better off.
The £50 in the UK is a rough equivalent of one week’s social welfare payment. I am not suggesting that we increase it to €188 for Ireland – that’s much too high, but a balance must be struck to account of the fact that we pay more for goods and services here than our UK counterparts. Take car tax for example, where you can tax an old 2-litre vehicle for £160, where the same vehicle costs €660. I would suggest increasing the qualifying amount to the debtor, of having a disposable income of less than €100, rather than €60, to qualify.
Similarly, the restriction on the value of the vehicle must be increased. It is very difficult in Ireland to find a roadworthy vehicle, or a vehicle which will not require a lot of maintenance, for less than €1200. The costs of the disposal of such an asset should also be taken into consideration, and it should be at the discretion of the Insolvency Service, whether or not a vehicle should be disposed of at all.
Guidelines are fine, but the discretionary element should be included. I would suggest increasing this limit to €3000, and include a proviso which takes into account the costs of maintaining the vehicle. For example, it may be allowed to ‘trade down’ where an older vehicle with road tax of €1300 per year can be exchanged or sold to be replaced with a vehicle which is cheaper to tax, eg if the debtor owns an old 3-litre jeep, they should be obliged to trade down to a smaller engine vehicle, again at the discretion of the Insolvency Service.
- The threshold of €20000 is too low and should be increased.
In the UK, a debtor may have ten or more credit cards, with very small limits. The reason for this, taking into account the evolution of the Insolvency Act in the UK, is because the credit card companies are happy to gamble giving someone a credit card with a limit of say £2000, even though they have other cards, as the minimum repayment will still be generally affordable. The UK companies have had to learn this. It is based on a more robust credit referencing system, and has led to a more responsible approach to lending in general.
In Ireland however, debtors generally have a maximum of three credit cards, as well as lower limit store cards and ‘doorstep’ loans. However, because our credit referencing system is way behind in terms of transparency than in the UK, and with the shared blame of over borrowing and reckless lending practices, card companies here would have extended limits well in excess of €10000 per card.
I believe that the threshold should be increased to €30000, as at €20000, the majority who need this strand of the legislation to work for them, will be excluded from the outset.
- Three years is too long a term because of the costs to the state
There is a strong likelihood that the person will remain on social welfare for the duration of the period. In effect, it is locking the person down in a similar way to bankruptcy, and will be a burden on the state for three years.
The costs of the Debt Relief Certificate have not been given proper attention. While the creditor(s) will face a maximum loss of €20000, the costs to the state and the taxpayer, in terms of the social welfare bill could be as much as €60000 per applicant for the duration of the term. This also does not factor in the costs of supervising the debtor over the three year period.
It is impossible for the debtor to contribute towards this, as they already have no disposable income. In contrast, in the UK, it costs £90 to apply for a Debt Relief Order. In most cases the applicant will have tried to save this money for several months, or will have received the fee from a family member or a charity. This goes some way to covering the costs, as the supervisory term in the UK is only 12 months. It will cost a lot more here, to supervise the debtor for three years, and if the debtor is to shoulder some of the costs, the cost of applying for the certificate in the first place will be prohibitive. The costs of any approved intermediary must also be taken into account, whether MABS or another Insolvency Trustee is looking after the debtor.
- Improving a debtors financial position
This is unfair to creditors, and completely unbalances the validity of the certifcate. It may be possible for a creditor to overturn a debt releif notice through the courts if a debtors position improves significantly. My view is that the notice should only be suspended, and the person should be able to then move into a debt management plan, which can be legislated for.
This would require a review of the debtors circumstances, where the Insolvency Service can pass the debtor on to an Insolvency Trustee (PIT), and if the PIT determines that, having assessed the debtors disposable income at say €300 per month, the debtor can then enter into a debt management plan, which may last for two, three or four years. Also, if the employment is short lived, and the debt management plan fails, the debt relief notice can then be re-instated for the remaining term. Someone with a Debt Relief Notice could not enter into a Debt Settlement Arrangement, as their debts would be below €20000.
There is an excellent opportunity here in terms of assisting people to recover, and potentially increase the return to the creditor. If we were to legislate for debt management as another strand to the bill, in conjunction with companies compliant under the EU Payment Services directive, monitored by the Central Bank (also forming part of the upcoming Central Bank Supervisory Bill). It would be an excellent opportunity to then regulate private debt management companies, and the fees that they charge. The debtor would also pay these fees, not the state, from their disposable income, something which creditors will accept if the fees are fair, particularly as they will get some, if not all of their money back. As they will have fully or partially discharged their debts, the taxpayer, the creditor, and in fact the debtor would all be better off.
- Restriction and qualification limits are too low
The £50 in the UK is a rough equivalent of one week’s social welfare payment. I am not suggesting that we increase it to €188 for Ireland – that’s much too high, but a balance must be struck to account of the fact that we pay more for goods and services here than our UK counterparts. Take car tax for example, where you can tax an old 2-litre vehicle for £160, where the same vehicle costs €660. I would suggest increasing the qualifying amount to the debtor, of having a disposable income of less than €100, rather than €60, to qualify.
Similarly, the restriction on the value of the vehicle must be increased. It is very difficult in Ireland to find a roadworthy vehicle, or a vehicle which will not require a lot of maintenance, for less than €1200. The costs of the disposal of such an asset should also be taken into consideration, and it should be at the discretion of the Insolvency Service, whether or not a vehicle should be disposed of at all.
Guidelines are fine, but the discretionary element should be included. I would suggest increasing this limit to €3000, and include a proviso which takes into account the costs of maintaining the vehicle. For example, it may be allowed to ‘trade down’ where an older vehicle with road tax of €1300 per year can be exchanged or sold to be replaced with a vehicle which is cheaper to tax, eg if the debtor owns an old 3-litre jeep, they should be obliged to trade down to a smaller engine vehicle, again at the discretion of the Insolvency Service.
- Compelling creditors to take action
- In terms of the notice itself, the creditor cannot have much of a say at all, which in terms of the debtor is a good thing, however, attention must be paid to accruing interest and charges. If a notice discharges, then that is the end of the matter. However, should a notice fail, or the debtor does improve their position, and the creditor allows interest and charges to accrue, then the debt will potentially be significantly higher after exiting the debt relief notice. It must be included in the legislation that the balance upon entering the Debt Relief Notice will be the same when a debtor exits, ie a freeze on interest and charges. Other examples include legal, but high interest ‘doorstep’ money lenders, who charge all of their interest up front giving a higher balance than the value of the money loaned to the debtor. Some of this interest should be clawed back and the loan recalculated.
