If a person is unable to repay their debts, they can be declared a Bankrupt. A person can take steps to declare themselves Bankrupt or a creditor who is owed money can apply to the Court to make a person Bankrupt.
The effect of Bankruptcy is that all of a person’s assets are divided amongst the people you are indebted to, by a Court appointed official called “the Official Assignee”
Bankruptcy obviously becomes a more utilised tool in recessionary times, one only has to read the papers to see daily examples of persons who are taking this route, (although it is a more attractive option north of the border or in the UK).
The reality is that it remains a very serious step and can be extremely costly. If you are a creditor and are looking to make a person, who owes you money bankrupt, the first thing you need to prove is that that person has committed an act of bankruptcy within the previous 3 months.
Acts of bankruptcy include not complying with a bankruptcy summons requesting payment of a specific sum due, within 14 days from service of the summons on you; or where the sheriff or county registrar makes a return of no goods in respect of you
If you find yourself in the eye of a bankruptcy threat, you should seek legal advice immediately. Options which might be examined are
a. Negotiating a voluntary arrangement, with your creditors to settle your debts.
b. Applying to the High Court for protection against proceedings to give you time to formulate a proposal to your creditors.
c. Transfer property to the Official Assignee to be sold and have the proceeds distributed among your creditors.
Any proposal to succeed will require the agreement of a majority of your unsecured creditors. An unsecured creditor is a person, who is owed money but who has no security for their debt. The costs, court fees, expenses, debts and the secured creditors must be paid, in full first, and that will include the Revenue and certain employee claims
In reality if you are declared a Bankrupt all of your assets, with the exception of necessities up to a value of €3,100, are transferred to the Official Assignee, who will sell them, and from the proceeds will pay costs, expenses, fees and certain priority debts (such as taxes) and only then will he pay the remainder to your creditors. It should be noted that the Bankrupts family home can be sold but only with the permission of the court.
The necessities to the value of €3,100 that you are allowed to keep, will include clothes, furniture and tools or equipment relating to trade, and necessities for your family and any dependent relatives living with you
The court may also use your salary and/or pension for the benefit of your creditors. The Official Assignee can also subsequently claim any assets which you aquire by way of gift or inheritance after you are declared bankrupt,
Once you have been declared bankrupt, you must disclose the fact when getting a loan for more than €650, when trading in a name other than which made you were made bankrupt, or when you act as a director, manager, auditor, liquidator or receiver of a company without permission of the court. If you do not declare it, you are guilty of an offence that can carry a maximum penalty of 5 years in prison and a fine of €1,270.
If you wish to travel outside the State, you must notify the Official Assignee. You may be arrested if the High Court believes you are leaving the State to avoid the consequences of your bankruptcy and as a bankrupt, you may not be elected to public office
A bankrupt is automatically discharged after 12 years, although a bankrupt can apply for a discharge after 5 years, if your assets have been sold and all your costs, fees, expenses and preferential debts have been paid, even if you have not paid all of your debts
Update following the passing of the Personal Insolvency Act 2012
The following are some of the changes made to the law by the passing of the new act
- 1. Debtor must have debts of at least €20,000, (previously €1,900)
- 2. Bankruptcy reduced from 12 years to 3 years;
- 3. Court have the power to order the bankrupt to make payments to creditors for up to five years;
- 4. Some pension assets can be ordered unavailable to creditors;
- 5. Court can order recovery of excessive pension contributions made by bankrupt within 3 years prior to adjudication;
- 6. Where there is evidence that a bankrupt has been non-cooperative, by hiding income or assets, the bankruptcy period may be extended to a maximum of 8 years.