The Law relating to personal insolvency in Ireland has recently undergone significant and radical reform with a reduction in the term of Bankruptcy from 12 years down to 3 years. The committee opened a consultation process following this alteration of the Law on whether the term for bankruptcy in Ireland should be further reduced to 1 year.
A vast amount of submissions were received, 122 in total, reflecting the strong and significant opinions on the issue of the various stakeholders. Many of these submissions were described as being very detailed and personal. The report has been sent to the Minister for Justice and Equality for consideration and engagement.
The current Law on Bankruptcy
The relevant legislation here is Section 85 of the Bankruptcy Act 1988, as amended by the Personal Insolvency Act 2012. Currently this legislation provides for automatic discharge of the Debtor after three years; however this may be suspended for up to eight years if the creditor objects for certain reasons. The report also noted that there is a prospect of EU harmonisation of bankruptcy arrangements and it described the varrying approaches other Jurisdictions use in relation to bankruptcy.
Observations outlined in the Report
There was overwhelming support in submissions towards reducing the bankruptcy term from 3 years to 1 year. Arguments in favour of reduction included that such a measure is necessary to aid the quickest possible economic recovery of the State (noted as a common trend from a number of submissions).
Also a reduced 1 year term would encourage the engagement of financial institutions with debtors to reach more meaningful solutions and encourage further engagement with the newer debt settlement processes which have been introduced in recent times, namely the Debt Relief Notice (DRN), Debt Settlement Agreement (DSA) and Personal Insolvency Agreement (PIA).
A reduction would also allow debtors who acquired the crippling levels of debt associated with credit obtained during the boom to return to economic normality much faster.
Finally a reduction would also bring Irish Law in this area into line with the United Kingdom and other common law jursidictions.
The report also discussed the smaller number of submissions which were opposed to reduction as the committee felt that although opposing submissions were in the minority, a number of important considerations were raised by such opposing submissions.
The perspective of Credit Unions were outlined. In this scenario the dept represents other members' savings and therefore it is considered very important that the debtor in question undertake a level of endurance before it can be written off.
Others who objected expressed the view that a reduced time period of 1 year firstly makes it too easy for the bankruptcy to defer asset/income acquisition until after the date of expiry and in addition to this the reduction would make newer debt solutions such as PIA and DSA less attractive. Some argued that rather than reducing the term in all cases it should be possible for the Official Assignee to apply to the High Court to discharge the bankrupt earlier in situations where the bankrupt has co-operated with the processes and there is nothing to be gained by enforcing the full three years.
Conclusions and Recommendations
It was concluded that there is undeniably an overwhelming support for reducing the term of bankruptcy from 3 years to 1 year.
Based on the submissions the committee concluded that a number of possible recommendations should be considered.
Some are of the opinion that given the term has only been reduced relatively recently from 12 to 3 years, it may be too early to further reduce it as any long term effects may not yet be apparent. However a desire to reduce the term to 1 year is the view expressed by the majority of submissions.
The Committees final recommendation to the Minister is a reduction in the term to 1 year but to provide for an application for an extension by the Official Assignee of up to 3 years in certain circumstances, for example where non-cooperation with the Official Assingee is evident.