What is Bankruptcy?

Bankruptcy is where the property or assets of an individual, who is unable (or unwilling) to pay their debts, is transferred to a trustee (a person given charge of the property) by the High Court to be sold. When the property or assets are sold, the costs, expenses, court fees and certain priority debts are paid. After this, the net proceeds are distributed to those owed money (the creditors).

In nearly all cases, the Official Assignee in Bankruptcy, an officer of the Courts Service, is the trustee to whom this property is transferred. This is the person who administers the estate of bankrupt persons.

How do you become Bankrupt?

There are 2 ways to become bankrupt: You can Petition for your own Bankruptcy or one of your creditors (people you owe money to) may petition for your bankruptcy.

Petition for your own Bankruptcy

You may bring a petition for your own bankruptcy where you are unable to pay debts to creditors and where your available estate (for example assets and property) is sufficient to produce at least €1,900.

You must provide an affidavit that you have made reasonable efforts to reach an arrangement with your creditors. This can be done by investigating the possibility of entering a Debt Settlement Arrangement (“DSA”) or Personal Insolvency Arrangement (“PIA”). You must also show that your debts exceed your assets by at least €20,000. The Court must be satisfied that you are unable to meet your obligations with creditors for the petition to be granted.

Petition by a Creditor

A creditor may petition for bankruptcy against you if you have committed an act of bankruptcy within the previous three months. The most common acts of bankruptcy relied upon by a creditor are:

- failure by you to comply with a summons requesting payment of a specific sum due, within fourteen days from service of the summons on the debtor, and

- the making of a return of no goods by the sheriff or county registrar.

For a creditor to be entitled to petition the court to make a you bankrupt, a number of conditions must be met. These include:

- the petition must be presented within three months of the act of bankruptcy,

- the amount of debt owed must be set out in an affidavit,

- the debt owed must be at least €20,000

- You must be either resident in the State or within a year prior to presentation of the petition, have ordinarily resided, had a dwelling house or place of business, or carried on business within the State.

The creditor's petition must state whether any security (for example, a mortgage or a charge) is held by them in respect of the debt. If so, the creditor must indicate whether he/she intends to give up the security for the benefit of other creditors or put a value on their security.

The Court will also consider whether a DSA or PIA would be a more appropriate solution for you before granting a Bankruptcy petition.

Want to avoid Bankruptcy?

If your debts are large enough that you are considering bankruptcy there may be alternative solutions available, that may suit you better. For instance, the Debt Settlement Arrangement (“DSA”) or Personal Insolvency Arrangement (“PIA”) are two new debt solutions enacted by the Irish Government in 2012. These solutions can allow you to come to an agreement with your creditors to enable you to keep your assets.