THE LONG-AWAITED new legal regime which will allow people struggling with major personal debt will take effect in the coming months, after the Oireachtas passed the final parts of the Personal Insolvency Bill yesterday.

The Bill, which will become law when it is signed by President Higgins next week, fundamentally reforms Ireland’s bankruptcy regime and provides for a legal system which can allow people with substantial personal debts to have them wiped off.

The regime has come in for some criticism, however, because it requires the approval of the majority of the person’s creditors in order for a debt resolution process to begin – meaning that in most cases, banks will still have a veto over whether to help someone be relieved of their mortgage debts.

People whose debts are not secured on an asset will be able to avail of a Debt Relief Notice system, which will allow debts of up to €20,000 to be written off after a three-year ‘supervision’ period. A similar court-enforced Debt Settlement Arrangement will deal with amounts higher than this.

A Personal Insolvency Arrangement, meanwhile, will allow a person and their creditors to agree a timetable for the settlement of debts – including having some of their debt forgiven – over a six-year programme.

The latter clause can automatically apply for secured debts of up to €3 million, though this limit can be raised with the agreement of all parties, and an infinite amount of unsecured debt.

In a keenly-awaited move, the laws will also reduce the minimum discharge period for someone entering bankruptcy – from 12 years to 3three.

This is seen as an attempt to stop the emerging trend of ‘bankruptcy tourism’, where some people move to Britain in order to avail of more lenient bankruptcy laws there that allow someone to emerge from the bankruptcy process within only 12 months.

The new regimes will be overseen by a new Insolvency Service, which is now expected to be set up in the first quarter of 2013, and whose chairman has already been designated.

In accordance with the Constitution, President Higgins must sign the Bill into law within five to seven days – that is, between Christmas Eve and St Stephens’ Day – unless it is referred to the Supreme Court for constitutional proofing.