Key Post The Official Assignee's attitude to allowing the bankrupt to make mortgage payments

Brendan Burgess

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Extracted from a document received from the Official Assignee

Assessment Process by Official Assignee

As in England & Wales (under IA 1986 S310A - UK), once parties agree that there is surplus income to contribute towards debts, a formal income payment agreement is drawn up by the Official Assignee. In the agreement the debtor agrees to make direct payments of an agreed sum on a monthly basis to OA Holding Account, which funds when received in account are subsequently transmitted to bankrupt person’s estate account.


The assessment commences with the Official Assignee requesting the bankrupt on adjudication to fill out a form (Statement of Personal Information) detailing all his income and household and any other necessary expenses on a monthly basis. The form also sets out contributions of all others in household contributing to such expenses. All items of income and expenditure are vouched by payslips, bills etc. In assessing a bankrupt for contributions towards payment of his debts from income, allowance is made for reasonable living expenses, one of the most important and substantial elements of which is, his accommodation expense. Where a bankrupt is renting, allowance is made for his share of rental payments. On the same basis and as in many other jurisdictions, England & Wales, Northern Ireland and Australia (indirectly) where he is not renting, allowance is also made for reasonable mortgage payments on his family home. In addition to the humanitarian ground justification for deduction of reasonable mortgage payments as an allowable expense out of income (founded on both constitutional and European Convention on Human Rights rights), is the ground that such allowance is also preserving the equity of Official Assignee in the family home. If there is or will be in a reasonable period (eg in next 5 years) equity in house for bankruptcy estate, Official Assignee can be regarded as preserving his share of equity in house as against a spouse; if he allows bankrupt contribute to mortgage payments, as otherwise spouse will in 5 years be able to maintain her share of house equity has increased proportionately to her increased mortgage payments over his in the period and deduct such sum in any sale of property or sale of interest of Official Assignee to her, at that stage. With massive 50% drop in house prices over years 2007-2012, many homes are likely to be in negative equity for 15 years or more and it is increasingly difficult in relation to such cases to justify allowing bankrupts pay their mortgages on this commercial ground.

(Discussion in relation to rates at which a bankrupt person is permitted to pay mortgage payments from his income is dealt with separately below.)


In some bankruptcies bankrupts are not earning any income, nor are they entitled to Social Welfare payments (e.g. self employed such as property developers) and the mortgages are not being paid. In other cases Department of Social Welfare is paying interest only on mortgages (under the Mortgage Interest Supplement) or individuals are claiming other benefits from it, which they are using to pay their mortgages and under S 283 of the Social Welfare Consolidation Act 2005, the Official Assignee has no entitlement to claim any of such benefits, which is also position in UK where only income of bankrupt is State benefit.


5.1.1.1 If such mortgage payments are allowable, should there be a uniform rate at which such mortgage payments should be permitted?

As stated above the Official Assignee in assessment of income payments from the bankrupt person, allows him deduct sufficient sums from his income to pay reasonable living expenses, the most substantial and most important deduction of which is for reasonable accommodation expenses ie his rental or mortgage payments. The mortgagee naturally seeks full payment of the mortgage or otherwise will make an arrangement with the bankrupt for a level of mortgage payment acceptable to it eg interest only payments for a period. Once the person is adjudicated bankrupt the Official Assignee is provided for approval with the mortgage payment amount by the bankrupt. He assesses the accommodation requirements of the bankrupt and his family and where the cost of the share of the mortgage payments paid by the bankrupt is appropriate, having regard to reasonable requirements of family, he allows the mortgage payment within the Reasonable Living Expense Guidelines of the ISI. Where however when he assesses the accommodation requirements of the bankrupt and his family and the cost of the share of the mortgage payments paid by the bankrupt is not appropriate, having regard to reasonable requirements of family, because for example the property is very substantial or because a massive equity release was taken out at the height of the boom and there is massive negative equity on the home, he does not allow the mortgage payment within the Reasonable Living Expense Guidelines of the ISI.. He will seek Court approval to have family reduce mortgage re-payments by moving to more modest accommodation and surrendering the property to the financial institution, at same time as seeking an Income Payment Order for the assessed amount.




As of March 2015 no application to Court on such basis has been made by the Official Assignee and no family has otherwise been forced to leave their homes on basis of such an assessment by the Official Assignee,
though with increasing numbers of bankruptcies such applications are likely in the future. The vast majority of surrenders of family homes and possession orders granted in 2014 and 2015, following the reduction in automatic discharge in December 2013 to 3 years, have occurred pre bankruptcy and accordingly bankruptcy has not been the cause of the loss of family homes but simply the process through which the unsecured debt on the family home and otherwise owed has been written off.


The allowance of mortgage payments as an essential living expense in bankruptcy is international best practice and is consistent with England & Wales policy on matter described above and that of the LRC described at paragraph 1.325 of its report. It stated therein that “the guidelines on reasonable income to be prepared should include a reasonable allowance towards mortgage payments in respect of accommodation appropriate to needs of debtor and his family. Where guidelines are breached because portion of debtor’s income required to service mortgage payments is higher than that specified in relevant guidelines for him and a family of its size and reasonable requirements, the family should move to more modest accommodation, with mortgage debt repayments within mortgage payment approved limits”.


It is obviously in the interests of bankrupts to either agree income payment agreements with the OA or consent to income payment orders, at earliest stage of bankruptcy to ensure payment period expires at earliest possible date post discharge. The orders which are applied for by the OA can be varied on application of OA or the bankrupt. S 85D (4) provides that, “In making an order - - the Court shall have regard to the reasonable living expenses of the bankrupt and his or her dependents and the Court may also have regard to any guidelines on reasonable living expenses issued by the Insolvency Service under the Personal Insolvency Act 2012 or by the OA.”
 
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