Irish Can’t Ignore Mortgage Debt in Insolvency, Hayes Says

Jan. 20 (Bloomberg) -- Ireland will have to deal with mortgage debt as it overhauls bankruptcy laws and introduces a personal insolvency regime, Brian Hayes, a junior government minister, said.

The government wants to shorten bankruptcy terms and introduce out-of-court debt settlements. Finance Minister Michael Noonan said yesterday the government had agreed with the country’s bailout partners that publication of “the very technically difficult bill” be delayed until the end-April.

“The Department of Finance doesn’t want a situation whereby mortgage debt can be written down without being declared bankrupt given this may have significant capital implications for the banks,” said Eamonn Hughes, an analyst at Dublin-based Goodbody, said in a note yesterday.

Ireland is reshaping its bankruptcy and insolvency laws after a real estate bubble collapsed in 2008, trebling unemployment and leaving some homeowners unable to meet their loans. Almost 13 percent of private residential mortgages were either more than 90 days in arrears or had been restructured at the end of September, according to the country’s central bank.

“We’re talking about the totality of debt,” said Hayes, in an interview with Dublin-based broadcaster RTE Radio today. “You simply can’t ignore mortgage debt in that context,”

The state has injected about 62 billion euros ($80 billion) into the country’s lenders over the past three years amid soaring bad-loan losses.


While Irish banks have capital to deal with troubled mortgages, “we are not going to see writedowns” until there is “certainty” on insolvency laws, Hayes said.

Irish lawmakers last year reduced the term for bankrupt individuals to be discharged from their debts to five years, under certain circumstances, from 12 years.

Hayes said the government will deal with continuing differences between Ireland and the U.K., where bankrupts can be discharged after a year. Ireland is also working a regime that will allow out-of-court debt settlements.

“The fundamental position of the industry is that a personal insolvency regime should be limited to unsecured debt,” said Eimer O’Rourke, director of retail banking at the Irish Banking Federation, said at an event in Dublin on Jan 18.

The IBF will engage with government “to ensure that if a decision is taken to include secured debt within the personal insolvency regime, that it’s done in a way which will minimize the capital impact on balance sheets.”

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