Bankruptcy is a formal insolvency solution available in Ireland for individuals with debt of over €20,000 and are unable to pay their debts as they fall due. It offers a legal pathway to debt relief by discharging most of the individual’s debts, allowing them a fresh financial start. However, this comes with significant consequences and responsibilities.
When you are declared bankrupt, your property and possessions are transferred to the Official Assignee (“OA”). The OA is a court-appointed official responsible for administering the bankruptcy estate, which includes managing your assets, dealing with creditors, and distributing any proceeds to repay debts.
Legal Framework and Cross-Border Implications:
Bankruptcy petitions are brought under Council Regulation (EC) No 1346/2000. This regulation ensures that a Debtor who petitions for bankruptcy in Ireland will no longer be liable for debts accrued in other EU countries, provided those debts are covered under the regulation. The aim is to create a cohesive legal framework across the EU, simplifying cross-border insolvency cases and protecting both creditors and debtors.
Duration and Potential Extensions of Bankruptcy:
In Ireland, bankruptcy typically lasts for one year. During this period, the bankrupt individual must cooperate fully with the OA, including disclosing all relevant financial information and complying with any requests made by the OA.
However, this one-year period can be extended under certain circumstances. For example, if the bankrupt person fails to disclose all material information, hides assets, or otherwise fails to cooperate with the OA, the OA can apply to the court to extend the duration of the bankruptcy. Extensions are intended to ensure full transparency and fairness to creditors, allowing the OA additional time to recover and distribute assets appropriately.
Alternatives to Bankruptcy
While bankruptcy can provide a fresh start for those overwhelmed by debt, it’s often seen as a “last step” due to its far-reaching consequences. Before deciding to declare bankruptcy, it’s essential to consider other debt resolution options under the Personal Insolvency Acts 2012-2021, such as:
- Debt Relief Notice (DRN): For individuals with low income and minimal assets, allowing the write-off of qualifying debts up to €35,000 after three years.
- Debt Settlement Arrangement (DSA): A negotiated agreement to repay a percentage of unsecured debts over five years, suitable for those who do not qualify for a DRN but have no secured debts.
- Personal Insolvency Arrangement (PIA): A comprehensive solution for those with both secured and unsecured debts, enabling restructuring of secured debts (like mortgages) and possible write-off of unsecured debts.
These alternatives may provide more favorable outcomes by avoiding the severe implications of bankruptcy and allowing more control over the management of your financial affairs.
Main consequences of bankruptcy
It is important to note that there are several consequences to declaring bankruptcy that you must consider.
- Ownership of your property and possession are transferred to the OA in bankruptcy (you are entitled to retain essential assets to the value of €6,000). The OA sells the property and possessions and distributes the proceeds fairly among creditors.
- Any surplus income above the Reasonable Living Expense will form an income payment order for 3 years.
- Your bank accounts will be frozen. You are entitled to have one current account which you can keep a balance of up to €1,000.
- Your interest or share in the family home is transferred to the OA. It is important to note that you may lose your family home when you are adjudicated a bankrupt. If the OA wishes to sell the family home, he must obtain permission from the Court. If the OA does not issue proceedings to obtain possession of your home within 3 years of the date of adjudication, your home may transfer back into your ownership.
- Any assets you gain while bankrupt is automatically transferred to the OA.
- If you have a pension that matures within 5 years of the day you are adjudicated a bankrupt, the OA has this right to claim this for the benefit of your creditors.
- You cannot be granted an enduring power of attorney on behalf of someone else. If you already hold one, it is automatically revoked in bankruptcy.
- You cannot be a trustee of a charity.
- You cannot act as director or secretary of a company or directly or indirectly be involved in the management of a company.
What happens when you are declared bankrupt?
All your debts and liabilities that you have accrued prior to the date of your adjudication, are cleared and your creditors can no longer seek repayment directly from you. Your creditors must deal directly with the ISI.
It is important that you co-operate fully with the OA and comply with your duties as a bankrupt. Failure to comply with your duties as a bankrupt can result in a fine and/or imprisonment if:
- You fail to disclose that you are bankrupt when obtaining credit over €650.
- You act as a director, manager, auditor, liquidator or receiver of a company without permission of the court.
- If you trade in a name other than that in which you were made bankrupt without disclosing this name.
Considering Bankruptcy?
Bankruptcy may seem like a drastic measure to take when you are in financial distress. However, it can be the most viable option in certain circumstances.
There are many factors to take into account before petitioning for bankruptcy. It is important that you speak to a professional with extensive experience in the field. At Anthony Joyce & Co Solicitors we have successfully brought numerous clients through bankruptcy over the past 20 years.
If you are unable to pay your debts and are considering filing a petition for bankruptcy, please contact a member of our bankruptcy team for a free consultation. We offer tailored advice based on your unique circumstances to help you manage your financial situation effectively.
