Justice Minister Alan Shatter has published legislation that he says will provide for a comprehensive reform of the personal insolvency system.
The legislation includes new mechanisms which would allow people to write-off debt without having to go through the courts.
It also reduces the period of bankruptcy to three years from 12.
Under the terms of the EU-IMF bailout, the Government is required to introduce new measures dealing with personal and mortgage debt.
The Minister for Justice heralded the new legislation as a significant reform of the insolvency regime, which allows for more flexible ways of dealing with people with unsustainable debts and mortgages.
Among the measures are a debt relief notice which would allow for the write-off of unsecured debt up to €20,000, a debt settlement arrangement for the agreed settlement of unsecured debt over five years and a personal insolvency arrangement for the agreed settlement of secured debt up to €3m.
But the Minister notes that the Bill does not provide for an automatic writing off of negative equity and he said that where someone is in a position to service their mortgage they must continue to do so.
An Insolvency Service to be established
A new Insolvency Service will certify or determine the application for a debt relief notice or a debt settlement arrangement or personal insolvency agreement before forwarding the relevant documentation to the Circuit Court. This body will operate the new insolvency processes and will provide a focal point for development of insolvency policy in the future.
It is expected that the Director Designate of the service will be appointed during the summer.
The move to a three year debt discharge means Ireland will now be in line with the European norm.
The provisions relating to a personal insolvency arrangement, according to the minister's statement, are specifically designed to allow people to own and live in their home, if that is what the person wishes to do and is in a position to afford.
The first step, the minister said, was for individuals to engage with their lender and that the protections afforded under the Central Bank code of conduct on mortgage arrears will continue to be available to co-operating borrowers.
Muted reaction from Irish Banking Federation
The Irish Banking Federation said that it had consistently supported reform in this area and that today's bill is the Government's response on this complex issue.
However is noted the amount of debt covered by a personal insolvency arrangement. It's set at three million euro and banks had lobbied for a smaller figure. The IBF also said it was disappointed at the creditors voting rights in the arrangement.
IBF President John Reynolds said that all banks join with the Government in seeking to ensure that the greatest possible number of borrowers in difficulty would have their repayments restructured and restored to sustainability.
Meanwhile Fianna Fáil gave the scheme a guarded welcome but criticised the involvement of the courts in its provisions. The Bill proposes that all arrangements must be approved by the Circuit Court but Fianna Fail's Dara Calleary claimed that would discourage many people. The party also said there should be a proper appeal system for those who felt a final agreement was unfair
A group which supports those facing repossession say the new insolvency laws have the potential to keep thousands of people in their homes.
New Beginnings say the new measures could help diffuse an economic and social timebomb and that it's the first step on the road to recovery.
The Independent Mortgage Advisors Federation have also welcomed the measures but say the new regime has some weaknesses.
IMAF spokesman Michael Dowling said the banks ability to veto arrangements and the lack of a third party appeals process is a cause for concern.
He said more information about the Mortgage Arrears Resolution Strategies (MARS), which have been put by the main lenders to the Central Bank, was needed before the full impact of the insolvency legislation could be assessed.