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The Report and two posts by Jason Kilborn on the Credit Slips blog are featured below.
Report on the Treatment of the Insolvency of Natural Persons (2013, the World Bank: Insolvency and Creditor/Debtor Regimes Task Force: Working Group on the Treatment of the Insolvency of Natural Persons; Committee Chair: Jason J. Kilborn; Members: Charles D. Booth, Johanna Niemi, Iain D. C. Ramsay)
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502131241/Rendered/PDF/771700WP0WB0In00Box377289B00PUBLIC0.pdf
Meet Europe's New Bankruptcy Laws - WSJ.com
http://online.wsj.com/article/SB10001424127887323296504578398612178796882.html?mod=business_newsreel
Lessons Not Learned in Designing a Consumer Insolvency Regime - Credit Slips
http://www.creditslips.org/creditslips/2013/04/lessons-not-learned-in-designing-a-consumer-insolvency-regime.html
April 2: Lessons Not Learned in Designing a Consumer Insolvency Regime
Judging by an Irish Times report today, the designers of the new Irish consumer insolvency system seem to be falling into two old familiar traps.
First, the focus of the story is on rumors that the proposed income guidelines for the new regime will make payment plans too parsimonious. Pressing debtors too hard in the name of "responsibility" is a recipe for disaster, as administrators of the French system learned decades ago. A discharge is a nice incentive to get debtors to really exert themselves for the benefit of creditors, but five or six years on an overly repressive budget will produce plan failure, all but guaranteed. Paul Joyce, Senior Policy Researcher at the Irish Free Legal Advice Centres (and an absolute prince of a guy) pointed out this danger in his fine policy analysis of the new regime. It will be a shame if the soon-to-be-released guidelines fail to heed Paul's and others' warnings.
Second, the government's response to these concerns is ominous: "The guidelines are indicative in nature only and are not binding." This is a time-honored capitulation by regulators who can't be bothered to make hard policy choices, and it has backfired time and again in Europe. The rather clear lesson from longstanding systems like those in France, the Netherlands, and Sweden is that consumer insolvency administrators either need or at least want reasonable rules, not vague guidelines. Customization is too expensive, especially given the limited resources available in these cases. Left with only general guidance, administrators will either undermine the entire regime by leaving debtors with blatantly insufficient resources, or they will gravitate toward some solid norm, most likely by applying "guidelines" as hard-and-fast rules. Some flexibility is necessary, but it is not realistic to expect administrators to expend significant time and resources establishing perfectly custom-crafted budgets in these sorts of cases.
These countries are separated by only a few hundred miles, yet regulators continue to ignore valuable, hard-won lessons from similarly situated neighbors. Lighthouse no good, indeed.
No, not that Hungarian financial crisis. Now that the country seems to have more or less righted itself, its citizens are still struggling with their own debts. Reuters reports that the Managing Director of the National Bank of Hungary has called for the country to adopt a personal insolvency law, much as Ireland just did in the midst of its own crisis. The Director seems to envision an approach along the lines of an emerging European standard, a clean slate after a 4- to 5-year payment plan. The IMF agrees, noting in its latest annual report on Hungary (see p 15, para 25) that establishing a personal insolvency system would help the banking sector to clear out its portfolio of non-performing loans and get Hungarian productivity back on track.
So what's the holdup? "Resistance from the banks." Where have we NOT heard that before!? Of course the banks resist, because they want to continue to maintain the illusion that their non-performing loans are actually worth more than a few fillér on the forint (if not zero). A Hungarian economics ministry secretary reports in the Reuters story that they're in talks with the banks about a potential personal insolvency law, but it is "unlikely to be launched this year," as "there should be sufficient time to prepare for it." Time!? A full-blown and well-developed proposal for a new personal insolvency law was floated and commented on by, among others, me, beginning in the fall of ... 2008! Is five years not "sufficient time" for these banks? And why did the 2008-09 proposal fail? "Resistance from the banks." Someone over there in Hungary needs to stand up to the banks and stop allowing the time-honored cry of "we need more time" to delay reasonable relief that complies with an international standard that has developed throughout Europe during the past 30 years.
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