MoneyTimes, July 16, 2013

Posted by Jill Kerby on July 16 2013 @ 12:00

PIPS ARRIVE, BUT ARE WE SEEING AN IRISH VERSION OF THE BIBLICAL JUBILEE? This week is a historic one: it might even be the start of an Irish debt ‘Jubilee’. A few of you may know the reference. In the Old Testament’s Book of Leviticus it is noted that every 15 years, slaves and prisoners are freed and sins and debts are forgiven. The Jubilee. From 1300, the Catholic Church resurrected the Jubilee idea (this time every 50 years), but with the emphasis on the forgiveness of sin and the purchase of indulgences, rather than the forgiveness of debt. In our modern era, some prominent western thinkers and economists have resurrected the idea of a debt Jubilee, finally realising that current global debt crisis ‘solutions’ like forcing taxpayers to pay for the bailout of failed banks and indebted governments hasn’t worked. And so they suggest that a debt Jubilee, which would involve the forgiveness of trillions and trillions in unpayable, unstoppable debt could be the mutually beneficial answer to the developed world’s economic and increasingly, social problems. (The Millennium year 2000 saw such a jubilee for Africa.) The problem however, is that see a painless result. Central banks this time, they say, should print yet more money and distribute the cheques to the citizenry, even to those who are not in debt (to spend or invest). This time not only are the indebted liberated, but the prudent are rewarded, moral hazard is abolished and consumerism, on which the foundation of modern economies so depends, gets a much-needed kick-start! It’s all nonsense, of course. The post-Jubilee historic record doesn’t make for easy reading. A lot of creditors in the ancient world went bust, their businesses collapsed, even more people lost their jobs and starved. (For the lucky, this was a temporary condition. Today, intergenerational social welfare means “the lucky” face widespread permanent unemployment.) Today’s promoters of debt Jubilee just don’t want to accept the long term consequences of genuine debt forgiveness, the most significant in a world of endless deficit spending being that people and states will have to learn the forgotten virtue living within their means. Unfortunately, this new debt Jubilee proposal is just another circle to add to the spiral of debt hell. (That Venezuela’s 39% inflation rate now teeters on the brink of hyperinflation is a good example of how debt-based solution to a debt problem inevitably means a currency collapse. We ignore this at our peril.) Anyway, back to our version of a debt Jubilee. From this week, if all goes to plan, the Insolvency Service of Ireland (www.isi.ie) will begin posting registers of names of Approved Intermediaries who can act for people applying for Debt Relief Notices (for unsecured debts up to €20,000) and Personal Insolvency Practitioners (PIPs) for Debt Settlement Arrangements and Personal Insolvency Applications (the latter for up to €3 million worth of unsecured and secured, mainly mortgage debt). The entirely court-based bankruptcy procedure – a three year discharge period of all debts for people incapable of repaying their debts – is expected to be operational later this year. The Irish version of a debt jubilee doesn’t replicate the Biblical one of instant debt forgiveness, but it does involve partial or total debt forgiveness depending on your circumstances. The successful Debt Relief Notice applicant will have all their debt written off after three years in which their spending and expenditure will be carefully monitored and supervised. Ditto for the bankrupt, who will be entirely debt-free (and asset free, unfortunately) at the end of three years. The DSA and PIA applicants will ideally find, at the end of their five or six years of insolvency supervision that all or part of their untenable debts (like negative equity) are also written off and/or restructured. They may or may not even keep their home under such an arrangement, but their Jubilee will only happen if they win the approval of the majority of their creditors. There is little sign yet that mortgage creditors are willing to write off all or part of the unsustainable homeloan since the consequences of this honest solution could be catastrophic (to bank solvency). Your personal Jubilee isn’t going to come easily. But the immediate concern is whether PIPs - all private agents who should be paid for their work out of the pool of money the debtor agrees to pay creditors over the 5-6 year discharge period - will take on clients who the banks have already declined debt forgiveness under the existing MARP (mortgage arrears process). If an application is rejected, the PIP would not get paid. The fear is that small debtors will not have the upfront fees that PIPs can demand. If this happens, bankruptcy may be the only solution. For the moment, let’s assume the best and wish the new Insolvency Service good luck. We have a Jubilee …of sorts. It shouldn’t be wasted.

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