# Problems with the new Debt Relief Notice



## frostie (21 Sep 2012)

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.    

 *The threshold of €20000 is too low and should be increased.*
 This is the same as the Debt Relief Order  in Northern Ireland, England and Wales. The threshold there is £15000,  but the types of debts, exposure of creditors and numbers of creditors,  vary greatly between the Irish jurisdiction and the UK. I can provide  documentary evidence showing how, in the UK, credit card companies  generally do not extend credit limits to the levels offered in Ireland.


 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*
 Firstly, where someone avails of a debt  relief certificate, they will have qualified by having little or no  disposable income. This generally means they are in a minimum wage job  or being supported by the taxpayer in terms of social welfare payments.  If we impose a three-year regime, as opposed to the one year term as was  originally proposed, there is no incentive for the debtor to improve  their position financially in terms of seeking employment, re-training,  or looking for a higher paying job at all.


 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*
 While some provision has been made for  someone to improve their financial position, it does not go far enough.  If for example, someone is presented with an employment opportunity, the  notice will remain in place, and they will be able to retain some of  their additional income.
 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 income restrictions of the Debt Relief  Notice are too restrictive for a number of reasons. In the UK, the  purposes for allowing someone to have a disposable income of up to £50  are to cover unforeseen expenses and to allow the debtor to have some  form of a quality of life, whether that is to take the family on a trip  to the cinema once a month, or to repair a broken washing machine, or  buy a part for their car to keep it on the road. We cannot simply  recalculate the same euro rate for Ireland, as the costs of living in  Ireland are much higher than those of the UK.


 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.
www.frost.ie


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## Brendan Burgess (22 Sep 2012)

Frostie

They are excellent points, obviously learned from your experience at the coal face. 



> Below are  some of the suggestions we have put forward to the Department of  Justice



Not sure how useful this is based on my own submissions. Their approach seems to be theoretical and ignores what happens in practice. 

I would suggest you submit it to the TDs on the Oireachtas Justice Committee and maybe also to the FF spkesman on Justice. 

You might also consider submitting a shorter version of it as an opinion piece to one of the newspapers. 

The Minister for Justice reads the papers. Not sure if he reads submissions. 

Brendan


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## frostie (24 Sep 2012)

Thanks Brendan, I have sent this through to various TDs involved, and have been informed that it is being considered. I'm looking for the thoughts of the users of the site to see if anyone else has additional recommendations that could be made. It's at report stage now, so time is limited, and it is my hope that changes can be made to the bill, before it is finalised. It would much better to delay finalising the bill, to ensure that what we get in the end is fit for purpose, because as it stands, I don't believe it is.


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## Bronte (25 Sep 2012)

Frostie I think you work on cases for people in debt. So presumable your figure of 30K instead of 20K is based on your own experience. Even on AAM it is quite amazing the amount of debt people have on all sorts. 

Very good point about the cost to society of keeping people tied up for 3 years. Far better for them to become active in the workforce as quickly as possible. There can also be health consequences for people being left in limbo for long periods of time. There is a cost to this too.


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## Steve Thatcher (4 Oct 2012)

Frostie, that was an excellent analysis, well done


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