One disappointing feature of Ireland's strong economic recovery has been the slow decline in the high level of private debt contracted during the economic boom. Despite the Government introducing insolvency legislation and cutting the bankruptcy period from 12 to three years, progress on lowering debt has been slow – notably in reducing residential mortgage arrears. Last June, some 38,041 mortgage borrowers were over two years in arrears on their repayments and owed €8.4 billion. The number of account holders in long term arrears has continued to rise – albeit more slowly – while the outstanding debt is less and less likely to be repaid.
That concern, among other factors, has prompted the Government to revisit the debt issue for a second time through further reforms of bankruptcy law. The proposal to reduce the bankruptcy term from three years to one year brings Ireland in line with the discharge period in the UK and Northern Ireland.
The proposed legislation should encourage debtors to make greater use of insolvency procedures recently amended. A new bankruptcy law may also put greater pressure on creditors, like the banks, which have been slow to deal with the problem of mortgage arrears to agree settlement terms with debtors – as they may receive less in a bankruptcy process.
The Government hopes to have the legislation – largely based on a draft bill by Labour backbencher Willie Penrose – enacted by year-end. The reduced bankruptcy term has, however, not been universally welcomed. Chris Lehane, the official assignee who is appointed by the court to oversee the property and assets of bankrupt people, has expressed serious reservations. He has argued that one year is too short a bankruptcy term and doubts whether this shorter terms makes retention of the family home any easier to achieve.
Bankruptcy is always regarded as a last resort which relatively few have been willing to consider. Whether a shorter term before discharge from bankruptcy now makes it a somewhat more palatable option remains to be seen.