Ireland to slash bankruptcy term to 3 years
* Maximum bankruptcy term to be cut to 3 years from 12
* Govt expects numbers to surge from 30 to 3,000 per year
* Struggling mortgage holders have non-judicial alternative
* Fin min says banks will not suffer extra losses
DUBLIN, Jan 25 (Reuters) - Ireland's government on Wednesday announced plans to slash the time it takes to be discharged from bankruptcy to three years from 12 and proposed a new non-judicial route for struggling mortgage holders to discharge their debt.
Finance Minister Michael Noonan said the non-judicial schemes would not increase bad loan costs to banks as they would allow more flexibility and make it easier for lenders to avoid the costly process of bankruptcy and foreclosure.
"We can't allow such a large proportion of our people, and particularly our young people, to continue in some kind of half-life limbo land, where they are struggling with repayments indefinitely," Noonan told journalists.
"The non-judicial route will significantly encourage the banks to deal voluntarily with persons in difficulty."
Irish household debt surged during the decade-long Celtic Tiger boom before it collapsed in 2007, and was 129 percent of GDP last year, according to IMF data, the highest level in the industrialised world.
More than one in 10 Irish home loans are not being fully repaid and the central bank has said it expects more borrowers to fall behind in repayments as unemployment remains stubbornly high and house prices continue to fall.
The new rules include three non-judicial arrangements for people to discharge their debts. But debts over 20,000 euros can only be discharged with the agreement of 65 percent of creditors.
The government said the rules broke new ground by including secured debt, such as mortgages. But borrowers must secure the agreement of 75 percent of secured creditors.
"We said there would be no debt forgiveness by diktat, but of course we are open to debt forgiveness on a case-by-case basis," Noonan said.
Justice Minister Alan Shatter said he expected around 10,000 people per year to use the non-judicial route, while the numbers declaring bankruptcy would increase to 3,000-4,000 compared to 20 to 30 at present.
It can take up to 12 years in Ireland to be automatically discharged from bankruptcy, compared with one year in the United Kingdom, prompting several high-profile developers to travel west across the Irish Sea to take advantage of the lighter regime, a practice dubbed bankruptcy tourism.
Ireland was required to change its bankruptcy laws under the terms of its EU/IMF bailout and has until the end of April to publish the new changes in full.