Cantillon: critics line up over plans to cut bankruptcy term

The Cabinet looks set to sign off today on the plan to cut the bankruptcy term from three years to one. Those calling for the change have comprehensively won the debate, and with political support led by Labour's Willie Penrose, and a general election in the offing, there is no doubt it will sail through.

Does this mean it is the right thing to do? There is no “right” answer when dealing with legislation that aims to strike a balance between debtors in a whole range of different circumstances and their creditors.

However, it is worth noting it is not only the big banks who have reservations about whether the whole thing will work.

Among the submissions to the Oireachtas committee that recommended the cut in the term was the credit union in Lisduggan in Co Waterford. It warned that it would give people too easy a route to walk away from their debts which, as its submission said, in the case of credit union loans were drawn from the savings of other members.

Perhaps the most significant objector to the cut in the bankruptcy term has been Chris Lehane, the official assignee, who is the court-appointed official who oversees the property and assets of bankrupt people. He has argued that one year is too short a term and that while this is the term in the UK, the international norm remains about three years. He also does not believe the shorter term would make it more likely people would be able to hold on to their family homes – and warns it could even lead to an inward flood of "bankruptcy tourism."

There are clear signs that those who are not up-front on their assets will face penalties. And it will be interesting to see how the post-bankruptcy payment period is handled. At the moment the assignee can enforce agreements for up to five years after the person exits bankruptcy, meaning a portion of any additional income goes to creditors. The proposal has been that this term be cut to three years. No one could be in any doubt that the old 12-year bankruptcy period was way too long. But are we now at risk of moving too far in the other direction?