The idea of ending up in prison because you cannot afford to pay your debts may seem like some kind of Victorian era punishment but, although rare, it does still happen, writes Laura Slattery

The idea of ending up in prison because you cannot afford to pay your debts may seem like some kind of Victorian era punishment but, although rare, it does still happen.

Imprisonment remains the ultimate sanction that can be imposed on people who ignore court orders requiring them to repay consumer debt, a fact of much concern to the Free Legal Advice Centres (FLAC) and the Money Advice and Budgeting Service (MABS).

Last May, FLAC published a report calling on the Government to review debt legislation so that casualties of the mushrooming consumer credit culture would be treated more humanely.

"That hasn't happened," says Mr Paul Joyce, a researcher at FLAC, which presented the case for law reform once again at a conference in Dublin earlier this week.

Three years ago, there were 5,500 applications for committal for non-payment of debt, says Mr Joyce. In the mid-1990s, the number of people imprisoned for non-payment of debt every year averaged about 200.

FLAC wants an "early warning" system for cases of chronic indebtedness, recommending that an independent arbitrator be set up to adjudicate on settlements.

Currently, courts deal with non-payment of debt on a loan-by-loan basis. But under a system used in several European countries called debt settlement, any available money would be split pro rata between the creditors.

"Reckless lending" by a creditor should be taken into account when determining their pro rata share, FLAC argues.

Interest on unsecured loans should be frozen and any residual debt after a finite repayment period written off.

A person's minimum protected income should be sufficiently high to encourage him or her to remain in the process, FLAC says.

This principle should also apply to "attachment of earnings" orders, where repayments are debited directly from a person's salary.

At MABS offices, budget advisers see at first hand the effect spiralling debt problems can have on individuals.

"By the time, they are served with court papers, they are usually at their wits' end. It causes huge stress, the debt being paraded in court," says Mr Tom Keating, chairman of the MABS national executive committee.

"You have to ask what purpose does it serve for the creditor. It won't produce the money. Most people are genuinely in debt and have no means to repay."

Borrowers in trouble can only be imprisoned for contempt of the court instalment order, Mr Keating points out. But many people, already intimidated by the tide of threatening letters and calls from less-than-polite debt collection agencies, often stick their heads in the sand and do not show up in court.

Consumers confident of their ability to handle credit think that this kind of mess could never happen to them.

But it is unexpected events such as a death in the family, illness, separation or loss of employment that frequently trigger situations where borrowers owe more than they earn.

Loss of overtime or commission payments can also lead to budget crises.

"Suddenly what you could afford last month, you can't afford this month," Mr Keating says.

Court instalment orders will give people in debt "very little spare flesh" for expenditure. "The person is being tied to the bone for probably a long time."

If the person defaults on the court order, he or she will be sent notice of a committal hearing.

At this stage, the person should ring the court clerk and ask for the proceedings to be changed to a variation hearing, so the instalment order can be adjusted, Mr Keating says.

They should then contact their local MABS office which will produce a proper statement of means for consideration by the court.

The ideal time to approach MABS, however, is long before the courts get involved.

Money advisers at these Government-funded offices will look at people's budgets and negotiate with each creditor on borrowers' behalf.

Creditors generally accept whatever repayments MABS says its clients can afford, according to Mr Keating, in order to avoid going to court.

Indeed, the Irish Bankers' Federation (IBF) already runs a Debt Settlement Pilot programme in conjunction with MABS.

There are currently 20-30 cases in train.

The IBF wants to expand the scheme before closing it off and assessing it. It has also made three submissions on attachment of earnings to the Government in recent years.

Consumer credit is now endemic, Mr Joyce says.

"Even though the economy is still allegedly brilliant, if there is any kind of recession, there will be hell to pay."