What is bankruptcy

Rules

A creditor can petition for bankruptcy against you if you have committed an act of bankruptcy within the previous 3 months. 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

What alternatives are there?

You can try to avoid bankruptcy by making a voluntary arrangement, if possible, with your creditors to settle your debts. MABS recommends that you should try to negotiate an affordable and sustainable arrangement with your creditors before considering bankruptcy.

Alternatively, you can apply for an arrangement under the protection of the High Court. This means that you ask the High Court for protection against proceedings to give you time to present a proposal to your creditors.

This proposal could be to pay them a dividend (usually a percentage) on your debts. Another option would be to transfer property to the Official Assignee to be sold and have the proceeds distributed among your creditors.

In order for such a proposal to succeed, it must get the support of specified majority of the unsecured creditors voting on it. (An unsecured creditor does not hold any security. Examples are trade creditors and holders of other business debts.)

The costs, court fees, expenses and debts to preferential creditors must also be paid in full. (A preferential creditor is a creditor whose debts have priority for payment before other creditors. These debts include taxes, rates and certain employee claims and benefits.)

What happens when you are declared 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. Once your property is sold, the Official Assignee will pay costs, expenses, fees and certain priority debts (such as taxes) and distribute the remainder among your creditors.

You must lodge an initial €650 towards the costs of the Official Assignee and towards court and advertisement costs. Although only the assets that you own when you are made bankrupt are automatically transferred to the Official Assignee, assets that you acquire after that date (for example, through inheritance) may still be claimed by the Official Assignee and sold 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. You are entitled to retain the following as 'excluded items' from bankruptcy to a value of €3,100 (although you may apply to the court to increase that figure):

• Clothes
• Furniture and tools or equipment relating to trade
• Necessities for your family and any dependent relatives living with you

The court can use your salary and/or pension for the benefit of your creditors, subject to any arrangements it may make to provide for your family responsibilities and your personal situation.

No deductions will be made from social welfare payments.

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.

• The Official Assignee can claim assets that you acquired after the date you were made bankrupt, such as a gift or inheritance.
• 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.
• If you hold a general power of attorney on behalf of someone else, it is automatically revoked if you become bankrupt.
• As a bankrupt, you may not hold elected representative office. This includes local authorities, the Dáil and the Seanad.

How long does bankruptcy last?

The Civil Law (Miscellaneous Provisions) Act 2011 (Section 30) (pdf) updated some of the rules on bankruptcy. Subsection 30(g) of the Act provides for the automatic discharge of a bankruptcy after 12 years. It also provides for a bankrupt to apply for a discharge after 5 years. This subsection came into force on 10 October 2011.

You can also be discharged from bankruptcy if you meet certain conditions.

Discharge from bankruptcy by the High Court

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)
• After payment of 50 cent in the euro when all your property has been sold
• After 5 years with conditions: You can be released from bankruptcy where the bankruptcy has lasted for five years and all of your property has been fully sold or disposed of. The court must be satisfied that the you have disclosed any property acquired since your bankruptcy and that it would be reasonable and proper to discharge you from bankruptcy.
• After 12 years: You are automatically discharged from bankruptcy 12 years after the order of adjudication. Any unrealised assets will also revest in you on that anniversary or whenever all the costs, court fees, expenses and preferential debts of bankruptcy are paid.

When you are discharged from bankruptcy, any money or property remaining is returned to you (provided all the costs, court fees, expenses and preferential debts of bankruptcy are paid).