New legislation introduced: Bankrupts can apply for discharge after 5 years

The Minister for Justice, Equality and Defence Mr. Alan Shatter, T.D. today announced the publication of the Civil Law (Miscellaneous Provisions) Bill 2011.

The Bill provides for amendments to provisions across the range of civil and regulatory law including:

· amendments to the Bankruptcy Act 1988 to allow for application for a reduction in the discharge period from 12 years to 5years and to provide for automatic discharge of bankruptcies existing for 12years or more (Part 7),




The Bill and the Explanatory Memorandum will be available on the Oireachtas website www.oireachtas.ie

Part 7
Bankruptcy
This Part, in section 20, proposes to amend the Bankruptcy Act 1988 to provide, subject to conditions, for the reduction of the application period to the court for discharge from bankruptcy from
12 years to 5 years and to provide for the automatic discharge of bankruptcies on the 12th anniversary of the adjudication order. A number of technical amendments relating to costs and certain
administrative matters are made to improve the operation of the Official Assignee in Bankruptcy.

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This is a general miscellaneous provisions bill to fix a few things and deal with some priorities.

I gather that it is intended that the Dáil would pass this legislation before the summer recess and that the section dealing with bankruptcy would be commenced in October, to give the Official Assignee time to deal with 365 legacy cases of bankruptcies

What does it all mean?

(6) Where a bankruptcy has subsisted for at least 5 years a bankrupt may apply to the Court for an order discharging him from bankruptcy where provision has been made for the payment of the expenses, fees and costs of the bankruptcy, and the preferential payments, and where the Court is satisfied that—

(a) the estate of the bankrupt has been fully realised,
(b) all after acquired property has been disclosed, and
(c) it is reasonable and proper to grant the application, the Court shall make an order discharging the bankruptcy.

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According to the law at present, if certain priority costs and creditors have been paid, you can apply to the Court to be discharged from bankruptcy after 12 years. This is now being reduced to 5 years.

85.—(1) Every bankruptcy shall, on the 12th anniversary of the date of the making of the adjudication order in respect of that bankruptcy, unless prior to that date the bankruptcy has been discharged or annulled, stand discharged.

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At present, you cannot be discharged from bankruptcy if you cannot pay these costs. So some people have been in a permanent state of bankruptcy. However, this change would mean that even if you can't pay these costs, you will be discharged automatically after 12 years.

This is a very welcome change. It had been in a draft bill produced by the last Government but fell when the Government fell.

In most cases people who have sufficient assets to discharge the costs of the bankruptcy will be discharged and given a fresh start after 5 years.

It would still be easier in many cases to go to Britain and be discharged after 1 year. But people who are hopelessly bankrupt who don't want to leave Ireland can give serious consideration now to taking advantage of this.

The whole legislation is being reviewed, but this is a welcome sticking plaster to a serious problem.


Brendan

How would this relate to someone on major negative equity on PPR, say Mortgage of 270k, Value of property 130k, and heading south, on tracker with EBS and and if rates go up a couple of % will be unable to cope and have to move back with parents and/or emigrate?

Negative equity is not in itself an issue.

A person could be adjudicated a bankrupt if they are unable to meet their repayments as they fall due. If you have a job and you are able to meet most of your monthly repayment either through your salary or through renting out the property, it is unlikely that you would be deemed bankrupt.

If you have a massive mortgage in relation to your salary e.g. €500k on a salary of €30k, and massive arrears, you could consider applying for bankruptcy.

Personally, I would struggle on for a while. There will be new legislation in around a year's time, which will be much more consumer friendly and allow for debt settlement over about 3 years. This would be a lot more attractive to someone without business debts.

Even with the 5 years' discharge, it is probably only suitable where there is huge pressure on you from creditors and the amounts are very large.

Brendan

"Allow for debt settlement over about 3 year" - Can you clarify this?

Also, the situation has changed dramatically since my son took the mortgage out, salary reduced, levies, pension contributions, etc, (same as a lot of people so not looking for sympathy) as the premise on which the mortgage was taken out has totally changed.

I just don't see a way out for him if rates rise (ConstantinG mentioned 6 or 7 % coming down the road) and more taxes or income deductions & charges hit him (property, water, etc) & don't know what to advise him.

It's discussed in the forum on Proposed Changes to Insolvency Laws

http://www.askaboutmoney.com/showthread.php?t=154382

indeed it is a welcome addition to legislation and long overdue

here's a hypothetical scenario

say the person is in huge negative equity on a appartment or a small house but has a job and can (or can't for that matter) pay the mortgage but can't move due to the neg equity, say they want to move 'cos they've outgrown the property in neg equity. They are "trapped" by the neg equity so to speak

could this person hand the keys back and emigrate to Oz and in 5 yrs be clear or would they still hold the debt?