Ireland plans bankruptcy reform

Christopher Werth Sep 23, 2011

Ireland plans bankruptcy reform

Christopher Werth Sep 23, 2011

Tess Vigeland: Last year, we brought you the story of a young couple in Dublin who are part of Ireland’s new “lost generation.” Saddled with a hefty mortgage, a car loan and credit cards, they were left buried in debt after Ireland’s housing bubble went bust in 2008. Well, there’s a plan underway in Ireland to help those like them, and it’s called bankruptcy reform.

Christopher Werth has the story.

Christopher Werth: When I last spoke with Geraldine and Paul Mangan-Ebbs, I visited them here, at their three-bedroom house, an hour outside Dublin.

Geraldine Mangan-Ebbs: This is the office cum spare bedroom.

Back then they owed about $300,000 on the place. And at the time, they were worried about the future of Paul’s job working construction, as new projects in that industry were cut back.

Paul Mangan-Ebbs: There will be no new residential or commercial building in Ireland now.

Fast forward to today, and Paul has lost that job. But he does have a new one. So Geraldine and I meet up with him at this parking lot just around the corner from his workplace.

Werth: Hey Paul.

He’s working the night shift, part-time at a postal sorting facility. And as we pile into Geraldine’s car to get out of the rain, he says he’s earning just a third of the money he used to. That makes it hard to stay on top of the monthly mortgage payments and other debts.

Paul: We’re still paying our bills.

Geraldine: It’s more about like, how are we going to feed ourselves?

And in a country of only 4.5 million people, there are hundreds of thousands in Ireland like Geraldine and Paul, says Jill Kerby, a personal finance columnist for Ireland’s Sunday Times newspaper.

Jill Kerby: We’ve built up a problem here of just biblical proportions. The total amount of personal debt in this country is about 250 billion euros. And there is simply no way that we can repay that level of debt.

Two hundred fifty billion euros is about $350 billion. And those high levels of indebtedness are why she says you’d expect to see a growing number of borrowers declaring bankruptcy in Ireland.

But Warren Baxter, of the financial consultancy Deloitte, says last year — the year Ireland received a bail out from the European Union and International Monetary Fund — there were a mere 30 bankruptcies in the entire country.

Warren Baxter: People don’t want to go down the bankruptcy route, because bankruptcy in Ireland is a very harsh way to deal with your problems.

He says that’s because once someone in Ireland goes into bankruptcy, the laws are so onerous, it’s practically impossible to get out.

Baxter: So they simply just remain in bankruptcy until they die.

As a result, Baxter says, there’s a backlog of people in Ireland who, if they were in the States, might chose bankruptcy. But here they’re still weighed down with debts they can’t pay. And he says that’s causing a drag on the economy. But one of the conditions of Ireland’s bailout is that the government has to make going bankrupt, and getting out of bankruptcy, a lot easier.

Baxter: What the IMF and the EU are hoping to achieve is to use this as a method of helping to get the Irish economy kick started, to give people a second chance.

People like Geraldine and Paul. New bankruptcy laws are expected in Ireland next year. So I ask if bankruptcy might be an option they’d consider.

Paul: I never thought of that, of bankruptcy. But it’d only be a last resort, if I couldn’t pay me bills.

Geraldine: If it was rock bottom.

Paul: You know, I took the loan out. So I want to pay my loan.

That is, if they can. Next year’s bankruptcy reforms are expected to spark a wave of new bankruptcies and debt settlements in Ireland. The question is whether Ireland’s already struggling banks can really afford to write down all of that debt.

In Dublin, I’m Christopher Werth for Marketplace Money.

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