Bankruptcy is making headlines again? That can’t be good news?
Actually, it can. Minister for Justice Frances Fitzgerald has just brought a Bill to Cabinet which will see the bankruptcy period in the Republic reduced from three years to one.
Hang on a second, did we not reduce the bankruptcy period only recently?
We did, as it happens. In 2013 the bankruptcy laws in the Republic were radically overhauled and in a single bound the legislation governing those in severe financial distress moved from the 19th century into the 21st. The key element of that overhaul was the cutting of the bankruptcy period from 12 years to three.
So if the ink is barely dry on that major overhaul of the law, why is being changed again?
Because to do so makes sense . For a start, there is a one-year period of bankruptcy in Northern Ireland and in Britain. The new law bring us into line with our closest neighbours so the whole notion of "bankruptcy tourism" will disappear from our lexicon. Bankruptcy tourism saw citizens of this State move to another one for 12 months to take advantage of their shorter terms, a move which was available only to small numbers with some money. Now the playing field has been levelled.
More importantly, it will allow people whose finances are in complete disarray to get over past mistakes and start living their lives again without a debt burden they could never hope to repay hanging over them in perpetuity.
Remind me again what bankruptcy is?
It is a High Court process that deals with unsecured debt such as personal loans, credit card and business loans, and secured debt such as mortgages. Once the process is done and dusted, all debts are written off and assets as well as any surplus income an applicant might have is transferred to an official assignee officer and used to pay back creditors. When the process is over the slate is wiped clean and all debts are written off.
How do I apply?
The first step is to meet a Personal Insolvency Practitioner. Once they assess your situation they can offer advice on the options available. As well as bankruptcy there are also Debt Relief Notices, Debt Settlement Arrangements and Personal Insolvency Arrangements (PIA).
If bankruptcy is the best fit, you complete a Statement of Affairs detailing your financial situation including how much you owe and to how many creditors. You have to document all income and expenditure assets owned by you and those which are jointly-owned with a partner or spouse. When all the paperwork is ready you pay a fee to the Insolvency Service of Ireland.
A fee? But I have no money. Did we not already establish that?
Don’t worry, the fees are not as bad as they used to be. The cost to individuals of filing for bankruptcy is €270 – down from €1,400. In the past bankrupts had to pay court stamp fees of €190, a charge of €20 for an affidavit, and the costs of placing notices in national newspapers. These notices can now be placed on the ISI’s website at no cost.
What happens then?
Once the paperwork is done and the fees are paid, the bankruptcy application is listed for the courts where you get formal legal approval. Once a petition is granted you attend the Bankruptcy Division of the Insolvency Service of Ireland to be served with a Bankruptcy Order and a Warrant of Seizure which allows the Official Assignee to assume ownership of your property and sell it in order to raise money to pay your creditors.
Will I lose my family home?
Not always. It depends on your individual situation and on key factors such as how much the property is worth, much you owe your lender and their willingness to reach an agreement on repayments.
What about living expenses?
You will be allowed to keep a bank account and sufficient income for “reasonable living expenses”. Surplus income must go towards repaying debts.
What does “reasonable” mean?
Again, this is a case by case thing. There are guidelines on the ISI website but the service has been at pains to point out the income has to be both reasonable and sustainable. They have no interest in casting people into penury.
Will there be a rush to the High Court by people wishing to walk away from their debts?
No. No one enters the process lightly. People would be very foolish to try and play the system. Under the new regime, penalties for those who try to hide their assets during the process will be increased. In cases of where the courts find serious non co-operation, a bankruptcy period could be extended up to 15 years. Currently the maximum penalty is eight years.
I just been granted bankruptcy. Where do I stand now? Do I have to wait three years?
For those already in the process, the bankruptcy period will be 18 months. Also under the current system, a person may still have to make payments to their creditors for up to five years after the bankruptcy period expires, however this will be reduced to three years where there is full co-operation.
