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Bankruptcy reform law to require another taxpayer bailout of banks?


patslatt

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See Troika puzzled as public left footing speculators' bill - The Irish Times - Sat, Oct 27, 2012

The government wants to allow debt writeoffs of up to €3 million under the pending Personal Insolvency Bill despite the fact that the average mortgage is only about €350,000.Apparently,the bill also protects the family home.

As I understand the Irish Times article,the bill will allow the debtor declaring bankruptcy to renege on the mortgage,yet keep the family home. Banks will be prevented from repossessing the home but surely this would be a violation of constitutional property rights that would have to be tested in the courts. Any legislation that makes it easy to renege on home mortgages will weaken the banks' negotiating position on defaults.It could cost the banks several billions,requiring a taxpayer bailout.

The foregoing will impair credit availability in the future,with mortgage lending confined to only the most creditworthy. Since the latter would be politically unacceptable,the government may be tempted to keep the mortgage lending operations of banks permanently nationalised so they can be ordered to meet quotas on mortgage lending.

Lack of mortgage credit would hamper new business startups and small business expansion as mortgage funding is their main source of loans and venture capital.

The €3 million limit on debt may be designed to help the property speculator lobby,according to the article. As I understand it,a debtor declaring bankruptcy could not be pursued by the creditors for debts up to €3 million,whereas under existing law personal debts of any amount can be pursued for life. The latter makes it very difficult for bankrupts to start over,unlike in the US where bankruptcy is often optimistically viewed as trial run for entrepreneurs.

Does pursuing debtors for life make much difference to debt losses? I suppose in future it would discourage the kind of double or quits gambling on property characteristic of the Celtic Tiger which laid low many a formerly wealthy speculator. As for collecting on debts in default,creditors could theoretically go after business people in default who start over and succeed. But how could they succeed with the debt albatross pursuing them for life? Many a potentially successful business could be prevented from starting in the first place.
 
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Not going to happen as foreign lenders who provide the money to Irish banks will see it as a heads you win, tails you win for speculators.

Hell I am a BTL investor, UK only as saw Irish return as unrealistic and frankly accept if goes wrong I go bust.
 

mctree

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If there is going to be debt write-down but you get to keep your own house i want some of that too. Wouldn't everyone.
 

ivnryn

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If there is going to be debt write-down but you get to keep your own house i want some of that too. Wouldn't everyone.
Right, it needs to require that house is re-possessed. Otherwise, what is the point of ever paying the mortgage?
 

Samell

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Not going to happen as foreign lenders who provide the money to Irish banks will see it as a heads you win, tails you win for speculators.

Hell I am a BTL investor, UK only as saw Irish return as unrealistic and frankly accept if goes wrong I go bust.
You are a rare breed Odie1 accepting a gambling loss on a bank. You are obviously not German.
 

Frank Galton

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Michael Noonan's answer to Sarah Carey's question about the 3m limit was not very convincing. He said that the committee had wanted 10m and that there were articles in the US media about how great the Irish bill is. He seems to mean one New York Times article

The Irish Economy » Blog Archive » NYT: Ireland Plans Bold Measures to Lift Housing

It's also not clear that they've done the analysis to predict how many BTLs might try to use the legislation once enacted.
 

Raketemensch

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Absolute bullsh1t. As if there were any doubt that FG = FF2. There is no money for hospitals or schools but plenty to keep well connected debt monkeys in their McMansions.

We need the Germans to save us from ourselves again. How can Merkel convince German taxpayers that paying the mortgages of the Irish upper middle class is good use of their money? Jesus, a straight out default would preferable to such outright corruption.

If this goes through, I'm out of this sh1thole immediately. There is no way my kids are paying the mortgages of those 3 generations before them whilst they themselves face a bleak future.
 

hammer

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I dont know what you are saying patslatt.

How does the €3m threshold change anything ?
 

patslatt

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I dont know what you are saying patslatt.

How does the €3m threshold change anything ?
You live in a family house with a three million mortgage. A declaration of bankruptcy cancels the mortgage but you go on living in the house. The bank can seize any assets you have at the time of bankruptcy but no later except the house.

I suppose it would be like Texas.Ex Governor of Texas Connolly who was wounded in the car with JFK went bankrupt in the 1980s but held on to his mansion.
 

cabledude

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The idea of a limit of €3 million euro is a joke.....

An average family home in the boom time was, depending on the part of the country, in or around 3-4ook. This is the only debt that should be written down. Not car loans. Or remortgages to pay for the villa in Turkey. Mortgage debt on principal primary family homes. End of. If the concept of debt writedown is to be sold to the general public, then it has to be for ordinary families that were engaged in providing a home for their family. Not wannabe developers with their E Class Mercs and stables out the back.

I personally know a couple who are in their 40's. They have a mortgage on the family family home. They also have a second house that they rent out, bought in 2004. Massive negative equity on the rental. They also have a site that when they bought it was 250,000 and had planning for 4 semi D's. Now they are in the sh1t. She recons that when 'The Writedowns' come they will be eligible. I laughed at her - out loud. And told her she was on cloud cookoo land. She was not impressed.....
 

im axeled

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well suffering holy biddy, bottler is saved, another kick in the conobblers for those of us who either refused to follow the lemmings, or those of us who also could not afford to gamble, the folks on joe duffey last week are now sipping champhagne.
 

cabledude

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well suffering holy biddy, bottler is saved, another kick in the conobblers for those of us who either refused to follow the lemmings, or those of us who also could not afford to gamble, the folks on joe duffey last week are now sipping champhagne.
Hold your horses. Nothing confirmed yet.
 

ivnryn

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I can see that protecting the family home in bankruptcy is reasonable as a general principle for other debts (3 million is pretty insanely high, maybe 2X the average home price would be reasonable).

However, the whole point of a mortgage is that it is secured on the family home. If you allow people to declare bankruptcy and keep the house, then there would be no point in ever giving out mortgages.
 
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If you go bankrupt you lose it all including the family home and any deals done over previous 6 years prior to bankruptcy that are used to hide assets become null and void.
 

hammer

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If you go bankrupt you lose it all including the family home and any deals done over previous 6 years prior to bankruptcy that are used to hide assets become null and void.
Post up that link please.

Supposedly it used to be 5 years if it was "obvious" that transfers were done to avoid your liabilities.

It would take a very good lawyer to prove that.
 

Davidoff

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I suspect the banks are still in poor shape.

When they were bailed out, the government were only guessing at the true level of bad debts in the system so there could easily have been an under-provisioning, and the assumption was made that the economy would return to growth pretty quickly, which plainly hasn't happened.

Any widespread writing down of debt from here would probably tip our magnificent pillar banks back into insolvency.

Certainly the whole 'extend and pretend' approach - with a little bit of PR window dressing followed by a determined kicking of the can down the road - would make a fella wonder.
 

human 19

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An interesting point from the article. I would be interested i knowing how true it is

"Cynics could be forgiven for concluding that a sizeable number of our politicians must have run up debts of millions of euro during the boom and are putting in a high threshold to cover their own speculative losses. It is striking that far from objecting to the €3 million threshold the pressure from backbench TDs was to raise and not lower the limit."
 
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