What is bankruptcy?: Bankruptcy is a legal process whereby the property or assets of an individual who is unable – or unwilling – to pay their debts, are transferred to a trustee (also known as an Official Assignee) to be sold. The proceeds of the sale are then distributed between the person’s creditors.
Advertisements are placed in newspapers to alert the public, which of course contributes to the considerable stigma associated with bankruptcy.
The purpose of bankruptcy is to create a level playing field for the creditors of the individual who owes money, and also to enable the debtor to draw a line in the sand and make a fresh start – eventually.
Normally the bankruptcy process is instituted by a creditor, but it is possible for someone to make themselves bankrupt if they can prove that they have €2,000 to cover the costs of the bankruptcy system.
Is bankruptcy becoming more common in Ireland?
Bankruptcy is still extremely rare in Ireland, particularly by international standards, but there is evidence that the numbers are starting to creep up. According to figures provided by the Court Service, bankruptcy petitions peaked at 30 in 2007, falling to 17 last year. However they appear to rising again – 10 petitions for bankruptcy have already been filed this year.
A total of eight people were adjudicated bankrupt over the course of 2008, compared to three people so far this year, suggesting that the total number of people made bankrupt during 2009 will be considerably higher than last year.
What happens to the family home? According to Barry O’Neill of Eugene F Collins solicitors, the job of the trustee is to sell all assets of the bankrupt person, including their share of the family home. However, if the house is jointly owned by the bankrupt and their spouse, the trustee must apply to the High Court for permission to sell the house.
“The court has an unenviable task: it must acknowledge the trustee’s right to sell the assets for the benefit of the bankrupt’s creditors,” Mr O’Neill explains. “Against that, the court will be very aware of the social distress caused to the bankrupt’s family if the house is sold.”
If the home is sold, the proceeds will be used to pay off the mortgage first. “The remaining money is divided equally between the non-bankrupt spouse and the trustee of the bankruptcy,” he explains.
How long does bankruptcy last?
According to the Examiner’s Office of the High Court, anyone who is made a bankrupt in Ireland remains a bankrupt (even after death), unless they have been discharged by the court. This can happen in a variety of situations – for example after a 12-year period has elapsed (which is very long by international standards) – but only after enough money has been raised through the sale of their assets to cover the costs, fees, expenses and certain priority debts that have arisen in the bankruptcy.
What are the implications of becoming a bankrupt?
Apart from the stigma, another problem is that a bankrupt cannot be a director in a company without the permission of the court. Also they cannot hold certain positions as an elected representative.
“You’re entitled to get another job, you’re entitled to have a reasonable level of income, but you’re not allowed have what I would call windfalls,” O’Neill says.
“You’re not allowed inherit,” he adds. Any inheritance “would go into the pot to pay your creditors”, he says.
“Sometimes the court may order part of the bankrupt’s salary or pension to be deducted for the benefit of the creditors,” according to the Examiner’s office.
Bankruptcy is also pretty much the worst thing that an individual can do to their credit rating. “If you’re a bankrupt, almost by definition, you should not be looking for credit and you shouldn’t be offered any credit,” he says.
In addition, once a person becomes bankrupt, their name and address is entered into the Bankruptcy Register kept by the Examiner’s Office. “Anyone involved in buying or selling property normally conducts a search against this register,” the Office says.
And, unfortunately, even if the person is eventually discharged from bankruptcy, their name will remain on the register.