COLUMN: Being declared bankrupt can seem a very daunting process for Tipperary people

Being declared bankrupt can seem a very daunting process, there is often a lot of uncertainty around how the system works and what you are and are not allowed to do, writes John Lynch of Lynch Solicitors.

But the process can be quite straight forward.

What does it mean? 

Essentially, if you are not able to meet your debts when they fall due, you may apply for bankruptcy.

This means that all your liabilities and assets become the responsibility of the Bankruptcy Court via a court officer, known as the Assignee in Bankruptcy. The process is based on full disclosure and co-operation by you.

Can I continue to earn?

You can continue to work and earn during bankruptcy.

You are allowed to retain a sum of money which is termed a reasonable living expense.

Any figure earned over this reasonable living expense is payable to the Assignee in Bankruptcy for a period of three years.

You can calculate what this reasonable living expense in advance by using a formula available on the Insolvency Service of Ireland web site – www.isi.gov.ie.

Can I still keep my bank account?

All bank accounts are usually closed by the banks on bankruptcy.

You can, however, operate a bank account but you are limited to the amount of credit you can get from a bank.

Your credit rating information is held by the Irish Credit Bureau (ICB), it is important to bear in mind that exiting bankruptcy does not have a positive effect on your credit rating. Any credit facilities post-bankruptcy are a matter for the bank involved.

Can I still run my business?

You can continue to operate [but not own] a business during your bankruptcy – you cannot be a director/owner/partner.

If you are in partnership, unless the partnership agreement says otherwise, the partnership is dissolved on bankruptcy.

If your interest in any business has a value then the Assignee in Bankruptcy may seek to realise this value for the creditors.

Can I manage a company or become a director of a company?

In bankruptcy, a bankrupt cannot act as director, auditor, manager, liquidator or receiver of a company.

If, however, you opt for the alternative to Bankruptcy, i.e. a Personal Insolvency Arrangement, there is no such restriction.

Can I travel outside the jurisdiction?

There is no outright prohibition on you travelling abroad unless you are leaving the State to avoid the consequences of your bankruptcy.

Are there alternatives to bankruptcy or personal insolvency arrangements?

There is nothing to prevent you making a voluntary arrangement with creditors to settle debts due to them and to avoid insolvency mechanisms or other proceedings against you.

The legislation for personal insolvency favours personal insolvency over bankruptcy but also leaves the door open for individual arrangements being made with creditors, as long as such arrangements are neither preferential not fraudulent.

As a general rule you cannot treat one creditor better than another and you cannot transfer assets in advance of bankruptcy at an undervalue.

Is my name on a public register?

The public register is kept as a record of all bankruptcies and personal insolvencies, including those that have been discharged.

A person searching the Register is told the status of the bankruptcy (discharged) or personal insolvency and the date it was discharged or completed. No information is given about their address.

After effects

There are a number of matters that are worth keeping in mind if you decide to go down the bankruptcy route.

Before you opt to for bankruptcy you are obliged to consider a Personal Insolvency Arrangement.

The bankruptcy period is one year – but it can be extended if you do not make full disclosure or fail to cooperate.

All your assets remain with the Assignee after you come out of bankruptcy – the exception is the family home which may come back to you after three years.

All your liabilities are written off – creditors must deal with the Assignee in Bankruptcy and not you.

You will live at a minimum level during the one year of bankruptcy – and if you have earnings in excess of this minimum, this will be paid to the Assignee for a period of three years. You are on a public bankruptcy register – and your credit rating will be affected.

You may retain your home and you are no longer insolvent. For further advice or if you wish to discuss any other legal area please contact reception@lynchsolicitors.ie or telephone 052-6124344.

The material contained in this article is provided for general information purposes only and does not amount to legal or other professional advice.

While every care has been taken in the preparation of the information, we advise you to seek specific advice from us about any legal decision or course of action.