F L AN END A C BASED ON MEANS? A N E N D B A S E D O N M E A N S ? A report on how the legal system in the Republic of Ireland treats uncontested consumer debt cases with an examination of alternatives and proposals for reform. yce Paul Jo es Email: [email protected] Free Legal Advice Centr Fax: (01) 874 5320 13 Lower Dorset Street, Dublin 7 Tel: (01) 874 5690 www.flac.ie AN END BASED ON MEANS? A report on how the legal system in the Republic of Ireland treats un- contested consumer debt cases with an examination of alternatives and proposals for reform. FREE LEGAL ADVICE CENTRES - 2003 Acknowledgements There are many people, far too numerous to name, who have helped with material and encouragement for this report; money advisors throughout Europe, Britain and Ireland, an assortment of public servants, creditor representatives and many individuals who responded in a helpful manner to requests for information as well as the staff, council members and volunteers of the Free Legal Advice Centres. However, grateful thanks are specifically due to two individuals who have played a key role in seeing this work come to fruition; Daithi Downey, formerly of the Combat Poverty Agency whose support and research expertise was essential in shaping the early drafts of the report and Stuart Stamp, formerly of the Money Advice and Budgeting Service whose support and money advice expertise was essential in delivering what is, hopefully, a coherent final version. s This report is dedicated to money advisors everywhere who work on an everyday t n e basis with people who are indebted and over-indebted. m e g d e Paul Joyce, Free Legal Advice Centres – May, 2003. l w o n k c a 2 FLAC would like to acknowledge the financial support provided by the Combat Poverty Agency in researching the material for this report. The views expressed herein do not, however, necessarily reflect those of the Combat Poverty Agency. FLAC would also like to acknowledge the financial support provided by Comhairle towards the costs of publication of this report. Whilst every effort has been made to ensure that the information in this publication is accurate, neither the Free Legal Advice Centres nor the author accept legal responsibility for any errors, howsoever caused. Design: Printwell Co-op (Susana Carvalho) Print: Printwell Co-op, 10-11 North Richmond Street, Dublin 1 Tel: (01) 855 0873/836 5507 FOREWORD Credit is now an integral part of the daily lives of the vast majority of the population and for many, these commitments range across a variety of agreements from housing loans, credit cards and car finance arrangements to credit union, credit sale, hire purchase and moneylending loans, many financed by limited incomes vulnerable to sudden change. Money advisors working in the frontline with over-indebted people are experiencing an increase in the number of clients presenting with multiple indebtedness, in particular to financial institutions1. In the event of a client’s inability to continue scheduled repayments, money advisors are reliant on the common sense of creditors to accept alternative proposals. However, there is nothing to prevent a creditor from taking legal action if they so choose, even when it becomes clear that the borrower in question is hopelessly indebted with a multitude of other creditors. When the borrower is dragged into the legal system, they are faced with a surfeit of obstacles – excessively formal documents, a lack of opportunity to participate in the absence of a strict legal defence, very limited access to legal advice or representation, and F outdated and inappropriate legislation such as the Enforcement Of Court Orders o r e Acts 1926 – 1940 - to mention but a few. w o r The Central Bank, in its annual report of 2000, provided an overview of risks to d financial stability in Ireland. In this section of their report, they indicated that 3 private sector credit growth has been a source of concern to the Bank for some time and that it had increased from 50% of GDP to 100% of GDP between 1994 and 2000. It speculated that “such a rapid build up in credit would be a cause of concern for the stability of the whole system if borrowers were to find themselves unable to service these higher levels of debt”2 This report, in the course of examining attachment of earnings systems and debt settlement legislation in relation to non payment of civil debt in other jurisdictions, echoes these concerns from an anti-poverty perspective. It poses fundamental questions about the suitability of the current legal system in Ireland to cope with increased consumer indebtedness and debt enforcement, which would become more pronounced in the event of an economic downturn. Of critical importance is that it also offers possible solutions as an agenda for future discussions. 1 Anne Eustace and Ann Clarke, National Evaluation of the Money Advice and Budgeting Service ( Dublin: Eustace Patterson Ltd, 2000) Page 27. According to this report, MABS had an active caseload of 7,800 clients as of June 1999 and had up to that point alone dealt with over 28,000 clients since its inception in 1992. Although originally established to assist with indebtedness as a result of moneylending, the report notes that 84% of clients were in debt to mainstream financial institutions at that time, and further that, 76% of the total debt owed by clients involved these institutions. 2 Central Bank of Ireland – Annual Report, 2000 – 27th April, 2001, Page 106 We have been members of the European Community for 30 years now and in that time economic growth and increased prosperity for many have led to a massive increase in the extension of consumer credit in Ireland. During this time, the majority of our fellow members have introduced debt settlement (or personal insolvency) legislation, whereby the clearly over-indebted consumer can reach an affordable scheme of repayment or part payment with their creditors, within a realistic timeframe. However, in Ireland, while our level of default on personal debt has mushroomed, our legal system has stood still. Many sensible changes to the existing outmoded system could be made immediately that would improve matters for all involved. Ultimately, it is also our view that a debt settlement alternative is needed, that takes into account the complex factors that can bring about over-indebtedness and balances the interests of debtor and creditor. Thus, Free Legal Advice Centres believes that it is time for a thorough review of debt enforcement procedure to be undertaken by the Department of Justice, d Equality and Law Reform in tandem with other interested parties. Suggestions r o to end committal to prison for non payment of civil debt or fines through the w e r introduction of attachment of earnings legislation are worthy but the proposals o F made by Government and other political parties thus far fail to address the complexity of the issues involved. It is hoped that this report fills that 4 information gap, in particular from the perspective of the indebted consumer and that its findings will stimulate a comprehensive debate on these issues leading to much needed changes . Siobhan Phelan, B.L Chairperson, Free Legal Advice Centres - May, 2003 TABLE OF CONTENTS Acknowledgements and Foreword 2-4 Section 1 Aims and Objectives of the Research 8 1.1 The Research Questions 1.2 Methodology Section 2 Introduction and Background to this Study 11 2.1 Summary 2.2 Over-indebtedness - Definitions, Causes and Effects 2.3 Attachment of Earnings - A brief history Section 3 The enforcement of debt in the Irish legal system 17 3.1 Introduction 3.2 Debt procedure - Obtaining judgement 3.3 Debt procedure - Enforcing judgement C o n t e n Section 4 An overview of the Money Advice and Budgeting Service and a t cross section of views from key informants on attachment of earnings 28 s 5 4.1 Introduction 4.2 Money Advice and Budgeting Service – An Overview 4.3 Questionnaire to Money Advisors on Attachment of Earnings 4.4 Submission of West/North West MABS region to the Minister for Justice on debt and the legal system 4.5 Views from the Irish Bankers Federation (I.B.F) and the Irish Finance Houses Association (I.F.H.A) Section 5 An analysis of the Private Member’s Bill and Dail debates on the enforcement of court orders 40 5.1 Introduction 5.2 Description of the Enforcement of Court Orders Bill 1998 5.3 Analysis of the substantive content of the Bill 5.4 Dail debate on the Bill Section 6 Existing attachment of earnings procedures in the Irish legal system 51 6.1 Introduction 6.2 A summary of the law in relation to Maintenance and Attachment of Earnings 6.3 The Household Budget Scheme 6.4 Provision in relation to compulsory rent deductions Section 7 Debt Settlement Legislation in other jurisdictions 57 7.1 Introduction 7.2 Statistical and Economic backdrop 7.3 Debt Settlement – Models of Consumer Bankruptcy 7.4 Towards a European Directive 7.5 Domestic developments – MABS/IBF Debt Settlement Pilot programme Section 8 Attachment of Earnings in England and Wales, Northern Ireland and Scotland 68 8.1 General Introduction 8.2 England and Wales 8.2.1 Introduction 8.2.2 Overview of debt enforcement in England and Wales s 8.2.3 Overview of attachment of earnings model in England and t n e Wales t n 8.2.4 The case for an Enforcement of Judgements Office o C 8.2.5 Administration and Composition Orders 8.2.6 General Conclusion 6 8.3 Northern Ireland 8.3.1 Overview of debt enforcement in Northern Ireland 8.3.2 Attachment of Earnings orders in Northern Ireland 8.4 Scotland 8.4.1 Overview