However, it said legal sanctions should remain against those who refuse to pay.
Approximately 200 people a year go to prison over unpaid debts.
In a consultation paper published today, the Commission also recommends a new system for settling debt that is shorter than the current 12 years that it takes to discharge a declaration of bankruptcy.
The consultation paper notes that there has been a dramatic growth in the availability of credit over the last 15 years.
Whilst most consumers are able to repay loans, over indebtedness has become a major problem for some, particularly since the economic downturn.
In 1995, the ratio of household debt to disposable income stood at 48%, but by this year that ratio had risen to 17%.
Under current law it takes 12 years to discharge a declaration of bankruptcy.
The paper says that a non-court-based debt settlement scheme should also be introduced - allowing honest debtors to earn an earlier discharge.
The Commission says there should now be a clear distinction drawn between those who cannot and those who will not pay.
In June of this year the High Court found it was unconstitutional to commit a person to prison for inability to pay a debt.
The Government is now drafting legislation that will allow the courts to imprison debtors who have the financial means to pay their debts but refuse to do so.
Ireland is fourth in an international league table of personal indebtedness, according to the Law Reform Commission.
