What is bankruptcy?

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 ISI’s website has the forms that you need to apply for bankruptcy, along with detailed notes on the application process (pdf).

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).

Income

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.

Assets

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:

• Clothes
• 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

Cross-border recognition

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:

1. If your creditors have been paid in full
2. If all of your unsecured creditors give their consent
3. After agreeing and paying a settlement with at least 60% of your unsecured creditors (called an Offer of Composition)
4. 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.