The Master of the High Court has urged the updating of laws to protect people unable to pay their debts and to introduce a level of "debt forgiveness".
Master Edmund Honohan strongly criticised banks and other creditors for pursuing "to the bitter end" debtors who simply cannot pay over judgment mortgages with the objective of writing off debts to achieve a tax benefit. Such meaningless "accountancy exercises" were causing social disquiet and driving some people to suicide, he said.
There was no reason why the 1850 Judgment Mortgage Act should not be changed to "put a brake" on the spiralling number of judgments, and that would be a way of introducing debt forgiveness, he said. "Why should there be an incentive to cause untold harm socially when there is no money at the end of the road?"
He stressed existing laws provide a measure of protection for debtors in difficult situations and warned that banks should not expect to have it all their own way when pursuing debtors.
"We know which banks were the cheerleaders for the tiger," he said. "Yet some banks are reverting to type and come to court assuming that the banker always wins anyway. That's not how the law sees it.
"If we drill down and find clear evidence that any transaction was in reality a sort of joint venture with the bank, the law will insist that both parties share the losses," he said. Most of the debt cases arose due to circumstances beyond the control of the borrowers, namely because the economy shut down as a result of the banking collapse, he added.
While debtors may think they are "outlaws in uncharted territory", even members of the "new debt set" have legal rights, he said, adding it was a criminal offence to demand repayment so frequently as to cause alarm, distress or humiliation; to tell debtors they are guilty of criminal offence; or to pretend to be officially authorised by law to enforce payment, and unjustified enrichment of creditors was also prohibited under law.
The Master, who deals with a range of legal matters including applications to register and enforce judgments, made the remarks today when dealing with several such cases.
In one case, he noted a creditor who obtained a judgment mortgage for €14,000, at interest of 8 per cent per year, arising from monies due for the hire of an industrial machine, was seeking an order aimed at procuring the sale of the family home of the particular debtor. This was a private creditor who was also free to sell on the judgment mortgage, Mr Honohan said.
He noted no laws have been introduced to implement recommendations by the Law Reform Commission in a 2004 report relating to debt relief, including that a family home should not be sold on foot of a judgment mortgage unless such order was approved by a court.
The commission also recommended a judgment creditor who registered a judgment mortgage over any other type of property would have to apply to court for the sale of the property. It also suggested the courts should consider a range of matters when dealing with an application for sale of the family home of a judgment debtor, including the financial means of the judgment creditor and of the non-debtor owner and their family residing in the property.
If there was not going to be "prompt" legislation updating the 1988 Bankruptcy Act, the 1840 Judgment Mortgage Act and the 1850 Debtors Ireland Act and introducing the proposed non-judicial debt resolution process, other stopgap measures should be considered, Mr Honohan said.
He called for the collecting together of debtor protection and relief provisions in a single measure, the reduction from 8 to 3 per cent of the [tax free] interest rate on judgment mortgages and laws to regulate any "new secondary market" in judgments or judgment mortgages.
Some creditors seeking to sell judgment mortgages to "speculators" who might take unorthodox measures to secure payment should be clear that only persons who secured judgment orders could apply to the courts to enforce them, he said.
He also urged full legal effect should be given to the EU Consumer Credit Directive of 2008 and that provisions protecting consumers should be extended to personal guarantors of non-consumer credit.
Guarantors who find themselves in court as "innocent victims of collateral damage" deserved "appropriate leniency", particularly if the principal debt was already written off by the creditor, he said.
The balance between secured and unsecured debts should be adjusted by restricting the option of securing any judgment to 50 per cent of the debt, he proposed. Tax deductions sought for written-off debt should only be granted on proof the debt was fully cancelled, he said.
