Long awaiting changes to legislation will allow individuals unable to pay their debts to be discharged from bankruptcy in three years rather than the 12.

The government has approve the terms of the Personal Insolvency Bill, ending draconian legislation that has seen the rise of 'bankruptcy tourism' with those struggling with debt emigrating to the UK where bankruptcy laws are more lenient.

Enda Kenny said it was a radical measure that would allow those unable to pay their debts to be discharged from bankruptcy in three years rather than 12.

It will, the Taoiseach said, institute non-judicial methods of dealing with debt settlement.

He said banks would have to be more pro-active in dealing with economic problems which were partially of their own making.

Housing Minister Jan O'Sullivan will give more details on Thursday of the proposed mortgage-to-rent scheme whereby those in difficulties could remain in their house and rent it back from the financial institution.

He said a new Mortgage Advice Service would be set up over the summer to be overseen by Social Protection Minister Joan Burton.

The Cabinet has approved the legislation  as part of the Government's Action on Mortgage Debt.

The Government Economic Management Council, comprising the Taoiseach, Tánaiste, the Ministers for Finance, Public Expenditure and Reform will meet with the main banks to brief them on the strategy and discuss their approach to mortgage arrears.

"We need to help struggling families who find themselves under unsustainable levels of mortgage debt. We have to give them some options whereby they can make a fresh start in their lives,'' the Taoiseach said in today's statement.

''Fundamental to our strategy is a radical overhaul of Ireland's regime for personal debt insolvency," he added.

The Tánaiste said that the bill would bring about fundamental change in personal insolvency law and that it would also bring in new forms of legal protection for people who are in debt, though not in full bankruptcy.