Bankruptcy is a commercial reality facing many people in Ireland today.
And the number of bankruptcies is increasing dramatically.
Because going bankrupt has the wonderful advantages of simplicity and finality-your debts are wiped and set at 0 and you get to start again, once you have been discharged.
What is bankruptcy?
Bankruptcy is a process where the property or assets of an individual, who is unable or unwilling to pay their debts (called a debtor), is transferred to a person given charge of the property by the High Court (called a trustee) to be sold.
NOTE: the early part of this article was written in 2009 before the new Personal Insolvency Act, 2012 which changed considerably the procedure surrounding bankruptcy in Ireland. You will find an update at the end of this page to reflect the law surrounding bankruptcy after the Personal Insolvency Act, 2012. But the consequences of bankruptcy, what happens your property, the family home, employment, operation of bank accounts, etc. remained broadly unchanged. The biggest change was the reduction in time in order to become discharged from bankruptcy from 12 years to 3 years.
When the property or assets are sold, the costs, expenses, court fees and certain priority debts are paid. After this, the net proceeds are distributed to those owed money (the creditors).
In nearly all bankruptcy cases, the Official Assignee in Bankruptcy, an officer of the Courts Service, is the trustee to whom this property is transferred. This is the person who administers the estate of bankrupt persons.
Bankruptcy proceedings are brought in the High Court. The application for a bankruptcy order (as well as any other application for the Bankruptcy list of the High Court) is filed in the Office of the Examiner of the High Court. Following this, the proceedings are dealt with by the High Court.
The High Court makes a debtor bankrupt either at the request of a creditor or at his own request. In either case, this request is made in a document called a bankruptcy petition. This must be filed in the Office of the Examiner of the High Court.
When the petition is filed, the petitioning creditor or debtor undertakes to the court to advertise notice of the bankruptcy in various newspapers. The advertisement must also contain details of the place, date and time of the next time this is before the court (called the statutory court sitting).
The petitioner must also lodge €650.00 towards the costs and outlays of the bankruptcy in the Official Assignee’s Office and give an undertaking to the Official Assignee as to the further costs and outlays which may be incurred.
Bankruptcy Petition by a debtor:
A debtor may bring a petition for his/her own bankruptcy where he/she is unable to pay debts to creditors and where his/her available estate (for example assets and property) is sufficient to produce at least €1,900.00.
Bankruptcy Petition by a creditor:
A creditor may petition for bankruptcy against a debtor where the debtor has committed an act of bankruptcy within the previous three months. The most common acts of bankruptcy relied upon by a creditor are:
(a) failure by the debtor to comply with a bankruptcy summons requesting payment of a specific sum due, within fourteen days from service of the summons on the debtor, and
(b) the making of a return of no goods in respect of the debtor, by the sheriff or county registrar.
For a creditor to be entitled to petition the court to make a debtor bankrupt, a number of conditions must be met. These include :
- the petition must be presented within three months of the act of bankruptcy,
- the amount of debt owed must be set out in an affidavit,
- the debt owed must be at least €1,900.00,
- the debtor must be either resident in the State or within a year prior to presentation of the petition, have ordinarily resided, had a dwelling house or place of business, or carried on business within the State.
The creditor’s petition for bankruptcy must state whether any security (for example, a mortgage or a charge) is held by them in respect of the debt. If so, the creditor must indicate whether he/she intends to give up the security for the benefit of other creditors or put a value on their security.
The consequences of bankruptcy
Bankruptcy impacts not only on the person made bankrupt, but also on their creditors, as well as others, including their family members or people who have a commercial relationship with the bankrupt.
Following adjudication (the court order making you bankrupt) a notice of this is published by the petitioning creditor or you (if you have made yourself bankrupt) in one national and one local newspaper.
This notice will also contain information about the next statutory court sitting. A local newspaper is one which is published in the area where you live or carry on business.
Creditors may appear at the statutory court sitting and may make a claim under the bankruptcy. Other notices are also published at various stages of the bankruptcy, such as advertising for creditors and notice of discharge of bankruptcy.
A bankruptcy register is maintained in the Office of the Examiner of the High Court and searches can be made against this register.
Can I stop the bankruptcy?
You may apply to the High Court within 3 days of the service of the bankruptcy order on you, giving reasons why you should not have been made bankrupt. This is called a show cause application.
What am I required to do when I am made bankrupt?
You must co-operate fully with the Official Assignee’s office in all matters relating to your bankruptcy. You must inform the Official Assignee if you change address.
Initially you must attend for interview with the Official Assignee. You must also file a Statement of Affairs in the Office of the Examiner of the High Court.
This document sets out all of your financial details including assets held and all amounts owed by you. The statutory court sitting will only be passed in the High Court when your Statement of Affairs has been filed.
You also have other legal obligations in connection with the administration of your estate and assets. This includes:
- the delivery of your accounts or papers to the Official Assignee when requested,
- the delivery of your title deeds to property and any other possessions to the Official Assignee,
- assisting the Official Assignee in the administration of your estate, and
- disclosing any property acquired by you since the date of your bankruptcy order to the Official Assignee.
Where you fail to co-operate with the Official Assignee, the High Court may summon you to examine you under oath.
What happens to my property when I am made bankrupt?
All property held by you when you are made bankrupt vests in the Official Assignee for the benefit of your creditors.
The role of the Official Assignee is to sell or otherwise dispose of this property (called realisation) and distribute the proceeds to your creditors. A vesting certificate is lodged in the Office of the Examiner of the High Court and with the Property Registration Authority.
This document records the interest of the Official Assignee in any property held by you at the date of adjudication. It means that you cannot sell or use this interest in the property as security to take out a loan.
The only property that does not vest in the Official Assignee is essentials up to a value of €3,100.00, or more if the High Court allows. Any property you acquire after you are made bankrupt, transfers to the Official Assignee, if and when the Official Assignee claims it.
What about property I own abroad?
Under EU legislation, (EU Insolvency Regulations 2002) bankruptcy proceedings in Ireland may be recognised as proceedings in most other EU member states. In most cases, this should allow the Official Assignee to realise such property for the benefit of your creditors.
Does bankruptcy have implications for my salary and pension?
Yes, the High Court may appropriate your salary or pension for the benefit of your creditors. However this is subject to any provision the High Court may make to meet your family responsibilities and your personal situation.
Can I operate a bank account while I am bankrupt?
Yes, you can operate a bank account. However if you obtain credit of €650.00 or more without disclosing your bankruptcy, you are guilty of an offence.
Can I still trade while I am bankrupt?
Yes, as long as you trade in your own name. If you trade in a name other than that in which you were made bankrupt without disclosing this name, you are guilty of an offence. You must notify the Official Assignee of any business or trade in which you engage.
Can I manage a company or become a director of a company?
No, under the Companies Acts it is an offence for a bankrupt to act in various capacities in relation to a company. These include director, auditor, manager, liquidator or receiver of a company.
Can I seek employment while bankrupt?
Yes, and you can continue in current employment or seek employment.
Can I travel outside the jurisdiction?
There is no outright prohibition on you travelling abroad but you should inform the Official Assignee if you intend to do so. You may be arrested if it appears to the High Court that you may be leaving the State in order to avoid the consequences of your bankruptcy.
Are there other consequences of bankruptcy?
Yes, bankrupt persons are not entitled to hold elected representative office, in local authorities, in the Dáil or the Seanad.
Are there alternatives to being made a bankrupt?
Yes, a debtor may enter a voluntary arrangement with their creditors to settle debts due to them and to avoid bankruptcy or other proceedings against them. Arrangements made outside of the control of the High Court tend to be less costly in the long run.
Alternatively, a debtor can apply for an arrangement under the protection of the High Court. This is where a debtor asks the High Court for protection against proceedings to give them time to present a proposal to their creditors.
This proposal could be to pay a dividend (normally a percentage of the amount owed) on their debts or to transfer property to the Official Assignee to be sold and the proceeds distributed among their creditors. The proposal must receive the support of at least sixty per cent in number and value of the unsecured creditors voting on it to succeed. The costs, court fees, expenses and preferential debts must also be paid in full.
I have been discharged from bankruptcy; will my name be removed from the register?
No, the Register is a record of all bankruptcies, including those that have been discharged. A person searching the Register is told the status of the bankruptcy (discharged) and the date it was discharged. No information is given about the address of the former bankrupt.
Family of bankrupt
Can the family home be sold?
The bankrupt’s interest in the family home vests in the Official Assignee as with all other property.
However 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 the creditors and of any spouse and dependants of the bankrupt.
We already have a mortgage or have borrowed against this home
Then this is a secured loan against the property and the Official Assignee’s interest only relates to the equity remaining in the property.
I jointly own the family home with the bankrupt, what about my interest?
Where the bankrupt owns property jointly with a spouse or partner, the bankruptcy causes the joint ownership to be split. The Official Assignee and the non-bankrupt co-owner then hold separate interests in the property.
As a bankrupt can still earn a living, what about our income?
The Official Assignee may apply to court for the appropriation of part of the bankrupt’s salary, income or pension. If the High Court directs any deduction to be made, it may have regard to the bankrupt’s family responsibilities and personal situation.
Social welfare and unemployment payments are not liable to appropriation.
Commercial relationship with a bankrupt
The following are some common examples of third parties dealing with a bankrupt.
Property owned jointly with a bankrupt
Where a person owns property jointly with a bankrupt, the bankruptcy splits the joint ownership. The non-bankrupt co-owner and the Official Assignee then hold separate interests in the property.
Property transferred by the bankrupt
Bankruptcy has legal implications for property transfers and possibly sales where the bankrupt entered into such transactions within certain time limits prior to the bankruptcy.
A partnership where the bankrupt is a partner is dissolved by the bankruptcy. This is unless the terms of the partnership provide for it to continue.
What can I do if a bankrupt owes me money?
You cannot use normal remedies (for example, execution, instalment orders and registration of judgment mortgages) to secure payment of your debt if the money is owed at the date of bankruptcy.
You must make a claim in the bankruptcy for payment.
Will I automatically be paid the amount owed to me?
Only when funds are available to the Official Assignee to distribute. In addition, all creditors must prove their debt. This means they must provide evidence of their debt to the Official Assignee, for example, invoices, bank statements, judgment orders or affidavit of debt.
An advertisement for creditors will be placed in newspapers during the bankruptcy process. This asks creditors to submit proof of their debt to the Official Assignee.
But creditors do not have to wait until the advertisement – they can send their proof to the Official Assignee before that date if they wish. Dividends to creditors will only be paid after this advertisement appears and a proof of debt sitting is held by the Official Assignee. This is where the Official Assignee decides if a debt (or the amount of a debt) is admitted.
All creditors are entitled to examine the proofs of other creditors.
Only debts owed on the date of adjudication are admitted under the bankruptcy. The High Court decides on disputed debts. This is where the bankrupt and the creditor do not agree on the amount owed or the amount admitted by the Official Assignee.
Once my debt is admitted will I be paid in full?
Not necessarily, this depends on a number of factors:
- the amount of funds available for distribution
- status of your debt,
- value of the bankrupt’s estate,
- method of discharge.
Do all creditors have the same standing in the bankruptcy?
No – there are different categories of creditors and their standing in a bankruptcy depends on whether they hold security for their debt or not. Once a debtor is made bankrupt, the petitioning creditor ranks equally along with all the other unsecured creditors. However the costs of the petitioning creditor must be paid before a bankruptcy is discharged.
What is a secured creditor?
A secured creditor holds security such as a mortgage or judgment against a property owned by the bankrupt.
The secured creditor can rely upon this security and sell the asset comprising the security. They must account to the Official Assignee in respect of the sale and may claim for any amount (if any) still owed following the sale.
After this and payment of any other secured claims, the secured creditor must pay any surplus to the Official Assignee and/or others having an equity in the property. There can be a number of creditors holding security against a single property.
Alternatively, the secured creditor may abandon their security and make a claim as an unsecured creditor for the entire debt.
What is a preferential creditor?
A preferential creditor is a creditor whose debts have priority for payment before other creditors. These include taxes, rates and certain kinds of employee claims and benefits. These must be paid in full before a bankruptcy is discharged.
What is an unsecured creditor?
An unsecured creditor does not hold any security, for example, trade creditors and other business debts. They rank equally with other unsecured creditors.
Discharge from bankruptcy
How long does bankruptcy last?
Anyone who is made a bankrupt remains a bankrupt, even after death, unless or until they are discharged by the High Court. There is no right to automatic discharge.
How is a person discharged from bankruptcy?
A bankrupt may be discharged from bankruptcy in a number of ways. No bankrupt can be discharged unless there are enough funds to pay:
- The costs of the Official Assignee,
- High Court fees,
- The costs of the petitioning creditor,
- The preferential debts of the bankrupt.
When someone is discharged from bankruptcy, any funds or properties remaining with the Official Assignee are returned to the former bankrupt.
(i) Discharge after payment of debts in full:
This is where the bankrupt’s creditors are paid in full. If the High Court so allows, interest may also be payable. Normally, interest is only paid where surplus funds are available.
(ii) Discharge with the creditors’ consent:
This is where all of the bankrupt’s unsecured creditors consent to the discharge.
(iii) Discharge after making composition with the creditors:
This is where unsecured creditors agree to accept payment of a certain percentage of their debt in settlement of the full amount. This must be supported by at least sixty per cent in number and value of those creditors who vote at a sitting of the High Court for this to be accepted. The bankrupt must provide the Official Assignee with sufficient funds to make this settlement and pay his/her unsecured creditors. This is called an Offer of Composition.
(iv) Discharge after paying fifty cent in the Euro:
This is where all of the bankrupt’s property has been fully sold or disposed of and his/her creditors have received fifty cent in the Euro on their debts.
(v) Discharge after twelve years:(NOTE: this has changed now with the new Personal Insolvency legislation, 2012)
This is where the bankruptcy has lasted for twelve years and all of the bankrupt’s property has been fully sold or disposed of. The court must be satisfied that the bankrupt has disclosed any property acquired since his/her bankruptcy and that it would be reasonable and proper to discharge the debtor from bankruptcy.
The register is a record of all bankruptcies, including those that have been discharged.
However a person conducting a search against the register is told only the status of the bankrupt ‘discharged’ and the date it was discharged. No information is given about the former bankrupt.
The main provisions of bankruptcy law are contained in the Bankruptcy Act, 1988, the Bankruptcy rules and forms, Order 76 and Appendix O of the Rules of the Superior Courts, the Deeds of Arrangement Act, 1887 and the decisions of the courts.
The court fees payable in bankruptcy and arrangement matters are contained in the Supreme Court and High Court Fees Order.
At present searches of the Bankruptcy and Arranging Debtor Registers can only be conducted by attending in person at the Examiners Office, 2nd Floor Phoenix House, Phoenix Street North, Smithfield, Dublin 7. The fee per search is available in the Rules & Fees section. Please note this fee is also applicable when the search returns a negative result – that is, there is no entry matching the search criteria on the registers.
If you have any enquiries about a particular bankruptcy or arrangement matter, you should contact the Office of the Official Assignee or the Office of the Examiner of the High Court.
All enquiries about court orders or applications for the bankruptcy list of the High Court should be directed to the Office of the Examiner of the High Court.
To Avoid Bankruptcy
1. Reduce your expenditures.
Analyze what are your needs and wants and segregate the two. Cut off expenses for things that you can live without.
2. Negotiate with creditors.
If it is possible, take your way out of the deadline and ask for a deadline that would work better for both of you. You can also ask them to limit your liability to a certain amount in return for prompt payment.
3. Resort to Debt Restructuring.
This may be obtained through court order or out-of-court.
4. See if any of the new personal insolvency arrangements are suitable for your situation.
Going Bankrupt in Ireland-The New Situation Post Personal Insolvency Act, 2012
The law surrounding going bankrupt has changed significantly in 2013 with the passing of the Personal Insolvency Act, 2012.
The new rules for choosing to go bankrupt yourself or being made bankrupt are set out in Statutory Instrument 120 of 2012.
There is also a guide on the Court Service website here.
While the new arrangement and earlier discharge period is much more attractive than the old and antiquated bankruptcy laws in Ireland, it is still not ideal and you will need to have at least €650 in cash to give the Official Assignee and assets of €1,904.61.
How to Go Bankrupt
Choosing to go bankrupt will involve petitioning the High Court, lodging €650 with the Official Assignee, and filing a statement of affairs once you have been adjudicated bankrupt.
The rules for a bankruptcy petition by a debtor are:
26. (1) A debtor’s petition shall be in the Form No. 13 and shall:
(a) contain an undertaking by the debtor to attend in person at the statutory sitting;
(b) contain an undertaking by the debtor to advertise notice of the adjudication and statutory sitting in the manner directed by the Court and to bear the expenses of such advertisement;
(c) contain an undertaking by the debtor to lodge such sums, if any, as the Court may from time to time direct to cover the costs, fees and expenses incurred or to be incurred by the Official Assignee;
(i) statements that the Insolvency Regulation applies to the proceedings and that the debtor’s centre of main interests is situated in the State and the facts and grounds supporting each statement; or
(ii) statements that the Insolvency Regulation applies to the proceedings, that the debtor’s centre of main interests is situated in another specified Member State and that the debtor has an establishment within the State and the facts and grounds supporting each statement; or
(iii) a statement that the Insolvency Regulation does not apply to the proceedings, and in such case, shall contain a statement that the debtor is domiciled in the State or that, within a year before the date of the presentation of the petition, he has ordinarily resided or had a dwellinghouse or place of business in the State, or that he has carried on business in the State personally or by means of an agent or manager, or that he is or within the said period has been a member of a partnership which has carried on business in the State by means of a partner, agent or manager and the facts and grounds supporting that statement, and
(e) where the Insolvency Regulation applies to the proceedings, contain a statement that, to the debtor’s knowledge, no insolvency proceedings have been opened in respect of the debtor in any Member State or Member States (other than the State), or that such insolvency proceedings have been opened and if so, whether those insolvency proceedings are main proceedings, secondary proceedings or territorial proceedings.
(2) Where insolvency proceedings have been opened in another Member State, the affidavit verifying the petition shall exhibit a certified copy of the original decision appointing the liquidator or any other certificate of the court having jurisdiction (as referred to in Article 19 of the Insolvency Regulation) and if such decision or certificate is not in one of the official languages of the State, a translation of that decision or certificate into the Irish or the English language certified by a person competent and qualified for the purpose.
(3) The petition shall be supported by an affidavit, which may be endorsed on the petition, which shall verify the petition and shall verify the facts supporting every statement made for the purposes of sub-rule (1)(d).
26A. (1) This rule applies only where the centre of the debtor’s main interests is situated within the territory of a Member State other than the State.
(2) In a case to which this rule applies, the petition shall also:
(i) identify the place within the State where the debtor has an establishment and the facts and grounds supporting that statement;
(ii) where main proceedings have not been opened in another Member State, contain a statement as to which of the conditions referred to in Article 3(4)(a) or Article 3(4)(b) of the Insolvency Regulation is met and the facts and grounds supporting that statement.
(3) The affidavit verifying the petition shall verify the facts supporting every statement made for the purposes of sub-rule (2).
27. A petition of bankruptcy by a debtor shall be supported by the affidavit of the debtor setting forth the particulars of his assets and where the same are and the estimated value thereof, in order that it shall be made to appear to the satisfaction of the Court that his available estate is sufficient to produce the sum of €1,904.61 at the least, and if required he shall produce satisfactory evidence of the value of such assets.
Source: Courts Service, Order 76
Before choosing to go bankrupt, you should seek the best advice you can get because bankruptcy is not for everyone so you should speak to any or all of the following:
- MABS (Money advice budgeting service)
- a PIP (professional insolvency practitioner)
- a solicitor.
Despite the claims of the head of the Insolvency Service of Ireland, Lorcan O’Connor, that going bankrupt in Ireland can be achieved for less than €750, it is likely that it will cost you considerably more.