What is bankruptcy?
Bankruptcy is an insolvency process which provides for the settlement of debt. The consequence of bankruptcy is that all your debts are written off immediately and the ownership of your assets passes to an official known as the “Official Assignee” (OA). If you have assets above a certain limit the OA can sell those assets and distribute the proceeds to your creditors. If you have income above a certain level you may be required to make payments to the OA for a maximum period of 5 years. During bankruptcy you cannot be a Company Director and cannot hold elected representative office. You will be discharged from bankruptcy within a maximum period of 3 years.
How to apply for bankruptcy?
The High Court makes a debtor bankrupt either at the request of a creditor or at the debtor’s own request. To bankrupt yourself you need to be able to establish the following 3 facts: Your debts must exceed your assets by more than €20,000. You must be insolvent. That is, you must be unable to pay your debts to your creditors in full as they fall due. You must have made reasonable efforts (insofar as your circumstances allow) to make use of the Insolvency Arrangements provided for in the Personal Insolvency Act.
What are the minimum living standards for someone who has become bankrupt?
The same minimum living standards will apply for bankruptcy as do for personal insolvency. The Insolvency Service of Ireland has set out specific guidelines for how it calculates ‘Reasonable Living Expenses’. The ISI has a section on its website showing how this applies to different areas such as childcare and housing: www.isi.gov.ie/en/ISI/Pages/RLE_calculated. It would be important to note that these figures are guidelines only and can be subject to special expenditure considerations.
What is the official assignee’s role in bankruptcy?
The Official Assignee (OA) is the Court Official who will administer your estate in bankruptcy. The role of the Official Assignee is to sell or otherwise dispose of this property and distribute the proceeds to your creditors. He will also be responsible for agreeing a payment order (if that is possible) and he will deal with your creditors.
What assets am I allowed to keep in bankruptcy
The maximum value of household furniture or tools or equipment allowed to be retained is a market value of €6,000 In practice this means ordinary day to day assets.
What happens to my family home under bankruptcy?
When a person becomes bankrupt the OA will consider what the reasonable living expenses are for the person and his or her family based on the guidelines issued by the Insolvency Service. As part of this, the Official Assignee will allow sufficient money for accommodation and will consider how much will be allowed for reasonable mortgage repayments. The Official Assignee has said that the family home is the last asset that he will choose to deal with. Additionally, the Official Assignee may not sell the family home without obtaining permission from the High Court. Where the Official Assignee seeks this permission, the High Court may postpone the sale of the family home having regard to the interests of creditors and the interests of the bankrupt’s spouse and dependents. Finally, if the family home is in negative equity (the mortgage is greater than the value of the property) there is no benefit to the assignee is selling the property.
What if the family home is jointly owned?
If the bankrupt person has a spouse or co-owner, only the bankrupt’s interest in the house transfers to the Official Assignee. Take for example the case of a bankrupt person who, along with his or her spouse, has a mortgage of €200,000 on a house valued at €125,000. The Bankrupt’s interest in the house is worth nothing. The OA will be keen to transfer the bankrupt’s interest to the other spouse and has said that he would accept a sum of €5000 for that transfer. That sum could be paid over time.
Where there is positive equity in the house the OA will first seek to sell the bankrupts interest in the house to the other spouse for the value of that interest. Only where this is not possible will the OA consider seeking sale of the property. This will be an expensive process for the OA and the Court is given wide discretion to delay or refuse to order such a sale. Where the house is sold the negative equity is written off in full as against somebody in bankruptcy. So if a house is sold where the mortgage is €300,000 and the property is worth €200,000 the bankrupt person will not owe any further amount to the bank.
What happens to residential investment properties under bankruptcy?
The Official Assignee has said that where investment properties are in positive equity he will sell these properties. Where investment properties are in negative equity it is likely that the Official Assignee will take charge of the rental income and the bank will seek possession of these properties. Again, if there is negative equity after the sale the amount is written off in full.
What happens to my pension in bankruptcy?
A Pension is only affected in bankruptcy if, during the bankruptcy period, you are receiving payments from it or any capital sum is payable. If that is not the case your pension is unaffected. Where you are receiving payments or are eligible for a capital payment the OA will decide how much of that goes to creditors.
How long will I spend in bankruptcy?
The automatic discharge period for bankruptcy is now 3 years. It is possible to be discharged at any time prior to that if the creditors agree.
Bankruptcy payment orders
Income payment orders, which are usually done by agreement, can last for no longer than 5 years. Again this only applies to income above a certain threshold.
How much does bankruptcy cost?
The following is a guide to the costs involved in applying for bankruptcy:
- Court stamp duty on Petition and Affidavit €100.
- Official Assignee costs of €650.
- Indemnity to cover further costs of Official Assignee (if any).
- Solicitor and counsel’s fees if you are going to employ them.