Irish banks will have to offer debt forgiveness to people who are not able to service their loans the Minister for Public Expenditure and Reform Brendan Howlin said today.
Speaking days ahead of the passing of legislation aimed at tackling the debt crisis, the minister said that if a person could prove to an independent third party that their were not able to pay off what they owed then the debt would have to be written off.
The Insolvency Bill will be enacted this week and the measures contained within it will be fully operational by the Spring. It will allow debtors to emerge from bankruptcy after three years instead of the current 12 and to write-off debts up to €3 million.
Mr Howlin said it would "come to a situation where people who are demonstrably, to a third party external view, not in the position to pay will be absolved of that debt".
He said debtors could be given relief on debt which "isn't sustainable" but insisted that there would have to be "some level of engagement between banks and borrowers to ensure that those who can repay, do so".
Last week AIB confirmed that it would step up its pace of mortgage write-offs in 2013, by offering customers who are working with the bank the chance to have some debt cancelled.
Minister for Justice Alan Shatter welcomed AIB's confirmation that it would offer mortgage restructuring and the possibility of some debt forgiveness to customers who work with them and he expressed the hope that institutions would take a similar approach.
Speaking to RTÉ, Mr Howlin also said that there would be circumstances where repossession of properties bought as investments would be the "best solution."
He was speaking after it emerged that the Republic's main banks were planning to get tough on buy to let (BTL) investors not servicing their debts.
Late last week the Central Bank published details of the indebtedness attached to BTL properties for the first time. The figures show that 26,770 or 17.9 per cent of such accounts were in arrears of more than 90 days as at the end of September.
The outstanding balance on buy-to-let mortgage accounts in arrears of more than 90 days was €7.9 billion at in late September, the equivalent to 25.5 per cent of the total outstanding balance on all BTL mortgages.
Despite the scale of the crisis, the banks have been very slow to act. Now, however, four mortgage lenders - Bank of Ireland, Ulster Bank, AIB and EBS - are recruiting insolvency specialists to manage what is expected to be a growing number of receiverships in the investment sector. The banks are particularly anxious to target investors who are not using the full rental income on properties to service loans.
