What is bankruptcy?
Bankruptcy is a settlement of the debts of someone who is wholly or partially unable to repay their debts. It deals with both secured and unsecured debt.
The purpose of the bankruptcy is to distribute your assets fairly among your creditors and protect you from these creditors. The distribution is done through a court official, the Official Assignee in Bankruptcy, who is based in the Insolvency Service of Ireland (ISI) and manages its Bankruptcy Division.
Changes in 2016
The Bankruptcy (Amendment) Act 2015, which was signed into law on 25 December 2015, provides for several changes to the rules on bankruptcy. It includes the following provisions, which came into effect on 29 January 2016:
- Reducing the normal duration of bankruptcy from 3 years to 1 year (up to December 2013 it was 12 years)
- Returning ownership of the bankrupt person’s home to them after 3 years (subject to any outstanding mortgage) unless it must be sold to pay creditors
- Reducing the maximum duration of bankruptcy payment orders from 5 years to 3 years, except in cases of non-co-operation or concealment of assets
- Extending the duration of bankruptcy in cases of non-co-operation or concealment
- Streamlining and clarifying the processes
Provisions to remove the requirement for a statutory sitting of the High Court came into effect on 1 June 2016.
There are transitional provisions for people who are already in bankruptcy.
Read more about the changes on isi.gov.ie (pdf).
Before becoming bankrupt
If you are in serious financial difficulties, you may decide that declaring bankruptcy is the best solution for you. The ISI has published detailed information on bankruptcy, a debtor’s guide (pdf) and a set of scenarios (pdf). Its backontrack.ie website also has user-friendly information and guides on bankruptcy.
The Money Advice and Budgeting Service (MABS) recommends that anyone thinking of applying for bankruptcy should seek legal advice. The ISI also recommends anyone who is in doubt in relation to their legal or financial position to take appropriate professional advice.
A creditor can petition for bankruptcy against you if you have committed an act of bankruptcy within the previous 3 months. This is known as a creditor’s petition.
Examples of acts of bankruptcy are:
- If you fail to comply with a bankruptcy summons requesting payment of a specific sum due, within 14 days from service of the summons on you
- If the sheriff or county registrar makes a return of 'no goods' in respect of you - this is the return made by a sheriff to an order authorising him to seize the goods of a person when he has been unable to find any goods to seize
The Personal Insolvency Act 2012 introduced two additional acts of bankruptcy:
- Where the debtor has been subject to a Debt Settlement Arrangement which has been terminated or which is deemed to have failed
- Where the debtor has been subject to a Personal Insolvency Arrangement which has been terminated or which has failed
The ISI has published information for creditors.
What alternatives are there?
You may be eligible for one of the 3 debt resolution processes introduced under the Personal Insolvency Act 2012 – read more in our document on personal insolvency options.
Bankruptcy process and outcomes
There are several steps you must take when you have decided (alone or with professional advice) to make yourself bankrupt. While instructing a solicitor is not necessary, the ISI considers it advisable to get professional legal advice in advance of declaring yourself bankrupt or defending any bankruptcy proceedings. The Irish Mortgage Holders Organisation (IMHO) provides a free service (excluding Official Assignee and court administration costs) in relation to bankruptcy.
The process is summarised below:
- Lodge €200 with the Official Assignee
- Complete your petition, which must be verified by a sworn affidavit and a sworn statement of affairs
- Get the above documents stamped at a court Stamp Office
- File the stamped documents and statement of affairs at the Examiner’s Office and get a court date
- Attend the court hearing on that date, where the judge, if satisfied, will adjudicate you bankrupt
- Meet the Official Assignee or Bankruptcy Inspector to be interviewed about all your assets and debts
- Place a notice of your adjudication as a bankrupt in Iris Oifigiúil (the State gazette)
- Place a notice of your adjudication as a bankrupt either on the ISI’s website or in a national daily newspaper
Before 1 June 2016 a statutory High Court sitting was also required, but this requirement was removed by the Bankruptcy (Amendment) Act 2015.
What happens when you are declared bankrupt?
A Bankruptcy Inspector from the ISI will serve you with a copy of the Order of Adjudication (Bankruptcy Order) and Warrant of Seizure. The Inspector will also give you a form to complete, requesting various details, which the ISI will use to contact you and process your bankruptcy.
Your bank accounts will be frozen, except for one current account in which you can keep a balance of up to €1,000 for general living expenses.
The ISI will contact all financial institutions and inform them that you have been made bankrupt.
As soon as your bankruptcy starts, you are free of debt. The Official Assignee now owns your assets and administers your estate. Your creditors can no longer seek repayment directly from you. They must deal directly with the Official Assignee and all correspondence should be forwarded to him.
You must contribute any surplus income to the Official Assignee.
Your name will appear in the Bankruptcy Register, which is kept in the Office of the Examiner of the High Court. Anyone can check this register.
Read more in the ISI’s guide After you are made bankrupt (pdf).
The Official Assignee will negotiate an Income Payment Agreement or seek an Income Payment Order for the surplus of your income over the reasonable living expenses for your situation, based on the ISI’s guidelines. The agreement or order will last up to 3 years. (The Bankruptcy (Amendment) Act 2015 reduced this period from 5 years, with effect from 29 January 2016.)
No deductions will be made from social welfare payments.
Read more about how bankruptcy affects your income.
All of your assets, with the exception of necessities up to a value of €6,000, are transferred to the Official Assignee, who will sell them.
You are entitled to retain the following as 'excluded items' from bankruptcy to a value of €6,000, although you may apply to the court to increase that figure:
- Furniture and tools or equipment relating to trade
- Necessities for your family and any dependent relatives living with you
Once your assets are sold, the Official Assignee will pay costs, expenses, fees and certain priority debts, such as taxes, and distribute the remainder among your creditors.
If you acquire assets after the date when you are made bankrupt (for example, through inheritance) the Official Assignee can claim them and sell them for the benefit of your creditors.
If you own a family home, by yourself or with another person, the Official Assignee may only sell it with the prior permission of the court. Where this permission is sought, the court will balance the interests of your creditors against the interests of your family and may decide to postpone the sale of your home.
If you hold property jointly (for example, with your spouse) your bankruptcy will cause the joint ownership to be split between the Official Assignee and your non-bankrupt co-owner.
The Bankruptcy (Amendment) Act 2015 provides for ownership of your home to be re-vested in you, subject to any outstanding mortgage, 3 years after you have been adjudicated bankrupt (with some exceptions). This change came into effect on 29 January 2016.
Restrictions on people who have been declared bankrupt
Once you have been declared bankrupt, you will be guilty of an offence if:
- You do not disclose the bankruptcy when getting a loan or any other credit facility of €650 or more
- When trading in a name other than that in which you were made bankrupt, you do not disclose the bankruptcy
- You act as a director, manager, auditor, liquidator or receiver of a company without permission of the court
These offences carry a maximum penalty of 5 years in prison and a fine of €1,270.
Other consequences of bankruptcy are:
- If you wish to travel outside the State, you should tell the Official Assignee. You may be arrested if it seems to the High Court that you are leaving the State in order to avoid the consequences of your bankruptcy.
- You cannot be granted an enduring power of attorney on behalf of someone else, and if you hold one already, it is automatically revoked if you become bankrupt.
- Under the Charities Act 2009, you may not be a trustee of a charity if you are adjudicated bankrupt.
- Some professional bodies disqualify members who are adjudicated bankrupt
The EU Insolvency Regulation (pdf) aims to simplify formalities governing the reciprocal recognition and enforcement of judgments in cross-border insolvency matters.
The Regulation designates bankruptcy as an insolvency proceeding which can benefit from cross-border recognition. This means that a debtor availing of bankruptcy will gain the same protection against creditors in most other EU countries that they receive in Ireland, subject to and in accordance with the Insolvency Regulation.
(The 3 processes introduced by the Personal Insolvency Act also come under this Regulation.)
Discharge from bankruptcy
You are automatically discharged from bankruptcy 1 year (formerly 3 years) after the order of adjudication. Your name will remain on the register, as a discharged bankrupt. If there is an Income Payment Agreement or an Income Payment Order in place, you will still have to comply with it until it expires. These arrangements can last up to 3 years (formerly 5 years).
You can also be discharged from bankruptcy if you meet certain conditions, as follows:
If your assets have been sold and all your costs, fees, expenses and preferential debts (such as certain tax debts) have been paid, it is possible for you to be discharged from bankruptcy even if you have not paid all of your debts.
You can be released from bankruptcy in any of the following ways:
- If your creditors have been paid in full
- If all of your unsecured creditors give their consent
- After agreeing and paying a settlement with at least 60% of your unsecured creditors (called an Offer of Composition)
- Automatically after 1 year (formerly 3 years) as noted above
When you are discharged from bankruptcy on grounds 1 to 3 above, any money or property remaining in your estate is returned to you, provided all the costs, court fees, expenses and preferential debts of bankruptcy are paid.
If you are automatically discharged after the end of the normal bankruptcy term without having satisfied your creditors on grounds 1 to 3 above, after discharge all your assets continue to vest in the Official Assignee for payment of all your debts, costs, fees and expenses in bankruptcy.
Details of fees payable are published on the ISI’s website.
When applying to be declared bankrupt, you must pay €200 to the Official Assignee.
There is no stamp duty payable to the Courts Stamp office for the petition, or for the sworn affidavit (incorporating a Statement of Affairs).
The charge for swearing of an affidavit before a Commissioner of Oaths is set out in S.I. No. 616/2003 - Rules of the Superior Courts (Fees Payable To Commissioners For Oaths), 2003
A notice in Iris Oifigiúil costs between €45 and €75, depending on its length.
There is no charge for advertising your bankruptcy on the ISI website.
Commercial rates apply if you place the advertisement in a national daily newspaper instead.
The cost of any professional advice can vary.
How to apply
As outlined in ‘Bankruptcy process and outcomes’ above, there are several steps that you have to take when applying to be made bankrupt. The ISI’s website has the forms that you need and detailed notes on the process, as well as the Debtor's Guide to Bankruptcy (pdf).
To start the process, you must lodge money to the Official Assignee, using the bank account listed in the Debtor's Guide. You then email proof of the lodgment to the ISI’s Bankruptcy Division.
Consult the ISI's notes and guide for a detailed account of the next steps.
If you wish to be discharged from bankruptcy, you apply to the Examiner's Office.