What is bankruptcy?

Introduction

Bankruptcy is a settlement of the debts of someone who is wholly or partially unable to repay their debts. 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'.

If you are in serious financial difficulties, you may decide that declaring bankruptcy is the best solution for you. However, declaring bankruptcy can be a costly option. The Money Advice and Budgeting Service (MABS) does not recommend taking this step unless you have given careful consideration to all available options and are sure that bankruptcy is the appropriate one for you.

MABS has produced an information leaflet on bankruptcy.

The Courts Service provides a detailed description of all of the procedures involved in bankruptcy.

Can someone else declare me bankrupt?

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 are 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:

• 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

Discharge from bankruptcy

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 after 12 years without having 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
• After payment of 50 cent in the euro when all your property has been sold
• If, after 12 years, your property has been sold and the court considers it reasonable that you should be released from bankruptcy

When you are discharged from bankruptcy, any money or property remaining is returned to you.

Rates

Bankruptcy can be expensive. Proceedings are taken in the High Court and will usually involve solicitors and barristers.

If you are applying to be declared bankrupt, you must lodge an initial €650 towards the costs of the Official Assignee and towards court and advertisement costs.

How to apply

You can either apply to the Examiner's Office of the High Court yourself or a creditor can apply to court to have you declared bankrupt. Bankruptcy proceedings may only be brought in the High Court.

If you wish to be discharged from bankruptcy, you apply to the Examiner's Office also.

Where to apply

Examiner's Office

High Court

2nd Floor

15/24 Phoenix Street North

Smithfield

Dublin 7.

Tel: +353 (0)1 888 6298

Fax: +353 (0)1 888 5260

Homepage: www.courts.ie

Email: examinersmail@courts.ie

Find your nearest MABS Office or ring the helpline at Lo-call 1890 283 438 (9am - 8pm, Monday - Friday) or email: helpline@mabs.ie