Up to 4,000 people are expected to apply next year for a write-off of up to €20,000 from debt on credit cards, hire purchase agreements, or smaller loans under the planned laws debated in the Dáil yesterday.

They will have to prove their assets are less than €400 — with the exemption of the family car, household appliances, tools, or other essential items.

However, Mr Shatter said that while he was “mindful of the sentimental as much as actual value of items such as engagement rings, etc”, they cannot be listed as essential items “given the potential for misuse of such a possible exemption”.

“I would need to hear very convincing arguments as to why a person applying for a full debt write-off of up to €20,000 from his or her creditors should be allowed to retain expensive items of jewellery which might be sold to repay some of the debt incurred.”

A further 15,000 people with bigger debts, such as mortgages, are expected to apply for either debt settlement or personal insolvency arrangements once the laws come into effect.

All three groups will have to provide a financial statement based on an assessment of their assets. Those who do not fully disclose all of their assets could face jail.

Assessments “will take account of the obvious basic necessities of living, for example, food, heat, and light”, Mr Shatter said in a Dáil debate on the bill.

Questions will be asked of “the continuation by the debtor of certain other lifestyle expenditures”.

Noeline Blackwell of the Free Legal Advice Centre said the law must not be used as a “punishment for people who fell into debt”.

She said while investment jewellery should be considered an asset, “you can’t interfere with the dignity of a person by, for example, taking away a ring that might be a commitment of a lifelong relationship”.

Independent TD Catherine Murphy said over-restrictive criteria could push debtors towards illegal moneylenders.

Sinn Féin TD Jonathan O’Brien said the criteria were “too restrictive” and more debate was needed.

Fianna Fáil’s justice spokesman, Dara Calleary, said while most people would not use the system to avoid responsibility, there would be some who see it as an easy way out.

It will be next year at the earliest before debtors can begin to sort out their crippling debt. Mr Shatter said the proposed Insolvency Service which will oversee settlements would not be in place until Jan 2013 “or very shortly thereafter”.

Meanwhile, most variable mortgage holders will have to wait and see if their bank will pass on the latest ECB rate cut of 0.25%. Customers at AIB will see no change in their repayments.