FOR MANY years, prison chaplains and social campaigners have argued that impoverished people should not be jailed for debt. Last June, the High Court found it was unconstitutional to imprison a woman who was unable to pay off a loan. And now the Law Reform Commission (LRC) has issued a consultation paper that addresses this and other complex financial and legal issues in a comprehensive and sympathetic manner.
The recession is likely to sharpen public focus on debt collection and house repossessions. Already, the Government-sponsored Money Advice and Budgeting Service (Mabs) has reported a rapid increase in the number of middle class people seeking help. Over-indebtedness has become a major problem because of job losses, financial over-commitment, irresponsible lending or a combination of all three.
Household borrowing, as a proportion of disposable income, has more than trebled since 1993, largely because of more expensive mortgages. Many young people now find themselves out of work and in negative equity situations. Their difficulties have been compounded by lifestyle-related borrowings and an excessive use of credit cards.
It is important to emphasise that the bulk of consumer debt is being repaid. But where problems arise, the LRC suggests that a central debt enforcement office could be established to deal with them, rather than clog up the courts. It is a sensible suggestion, in that the full extent of an individual’s financial difficulties can be established by the new body and non-judicial debt settlements made, possibly through an attachment of earnings.
Courts are regarded as a last resort in sorting out financial difficulties. Only where an individual deliberately refuses to pay should a prison sentence be contemplated. Such cases amount to about 5 per cent of the total. And even there, an attachment of earnings may solve the problem. Fault is not always on the borrowers’ side. The LRC proposes that lending agencies should be subjected to a binding code of practice and that a model of “responsible lending” be established. In addition, it seeks submissions on the circumstances in which a debtor’s home might be sold or protected from sale.
Fundamental reform is required. The LRC does not pretend it has all the answers. The Bankruptcy Act should be modernised and guidelines concerning the sale of debtors’ homes drawn up. Preliminary work should start immediately.