# Bankruptcy period can only be extended in cases of fraud



## Brendan Burgess (31 Dec 2012)

The  Minister clarified the arrangements here

With this legislation we are  effectively describing a period of three years' bankruptcy.  *The only  circumstances in which bankruptcy is extended, to paraphrase the  legislation, is where there has been a fraud on behalf of the debtor or  there has been a clear concealment of assets which may lead to the  bankruptcy period being extended for up to eight years.*  Those are the  only circumstances in which the bankruptcy period can be extended.   There is no question of this section extending the bankruptcy period  from three years to eight years for individuals who have not engaged in  fraud and have not concealed assets.  It is very important to get across  that message.  This is not a provision that will turn what is to be a  three-year bankruptcy period into an eight-year bankruptcy period and it  quite clearly does not do that.


  What does the  section do? The section contains a provision which allows for the  official assignee in bankruptcy to seek a "bankruptcy payment order" by  way of application to the court.  *The circumstances in which the  bankruptcy payment order may be sought are where during the course of  the three years of the bankruptcy period, the individual's financial  circumstances might substantially improve and there may be a valid  ground for arguing that post-bankruptcy it is reasonable that he or she  continues to discharge some element of the outstanding debt that has not  been discharged during the course of the bankruptcy.*



   The official assignee may be asked to pursue that issue by any  creditor - it does not have to be a financial institution.  Let us  always remember that we are dealing with insolvency legislation.  The  area about which the Deputy is concerned is of course of particular  personal concern to me and to the Government.  However, let us start  from the perspective that this is insolvency legislation.  In the  context of insolvency legislation where money is owed to creditors,  there may be other individuals who are barely hanging on financially and  who during the course of the bankruptcy have not recovered a reasonable  portion of the debt that is there, but because of the improved  circumstances of the bankrupt there is a fair and reasonable prospect  they may get something additional.  That could also apply to a financial  institution.


  The official assignee has  discretion, first, as to whether he or she makes that application and,  second, as to how much that application is for.  It will be for the  courts to determine how to deal with these applications and they must  deal with them in circumstances in which individuals who have exited  bankruptcy no longer have any of the constraints or difficulties of  being a bankrupt.  The person is free to get on with his or her life, to  create another business and to generate income in whatever way he or  she chooses.  If the person is successful in that, it may be fair and  reasonable for the person to discharge some additional portion of debt.   There will be circumstances where that is appropriate and there clearly  will be all sorts of circumstances where that is not appropriate.  From  the perspective of a creditor, whether secured or unsecured, a  financial institution or another party, there is no guarantee of the  outcome of making such an application to the courts.


   The official assignee may determine it is not appropriate to make the  application.  Even when the official assignee makes the application, the  courts may determine it is not appropriate to make the order because  there is a particular philosophy about this legislation.  The particular  philosophy is that people are genuinely given a second chance to get on  with their lives and exit from their financial difficulties.  Of course  people exiting bankruptcy must be given an incentive to get on  financially successfully with their lives and not to find themselves put  into further penury.  That is all very important.


   As the Deputy correctly says, this legislation is based on a certain  approach.  It is based on an approach in particular dealing with the  personal insolvency arrangement which deals with secured credit where it  is perceived there is an incentive for all creditors, including  financial institutions with secured debt, to engage constructively with a  personal insolvency practitioner to see if an agreement or resolution  can be reached.  For a range of reasons bankruptcy may be a very bad  alternative, as much for the financial institution or other creditors as  it is for the debtor because a debt settlement or personal insolvency  arrangement may, over a period of years, create a greater possibility of  recouping some of the debt due and may create greater opportunity for  the debtor to exit the arrangement.  From the financial institution's  perspective the bankruptcy would produce an inevitable sale of the home.   This may not be something the financial institution wants to achieve  for a range of reasons.  If it travels the route of repossession as  opposed to bankruptcy there may be substantial downsides.  The Deputy is  aware of those and I will not delay the House by going into them.


   This mechanism has been part of bankruptcy legislation in other  jurisdictions for some time and it remains part of this structure.   However, to suggest it creates a bankruptcy period of eight years  instead of three years is incorrect.  All of the constraints that come  with bankruptcy are lifted from an individual.  To some extent how this  will work in practice in the context of the new arrangement or how it  might impact on discussions and negotiations is greatly a matter for  conjecture.



  The personal insolvency arrangement  arises in circumstances in which we have tens of thousands of people  who are in significant personal financial difficulty with home  mortgages.  There are individuals who might have been part of two-income  family households and are now part of one-income family households,  individuals who may have been self-employed in businesses that were  successful in the early part of the 2000s but are barely eking out a  living for today, and individuals whose assets have collapsed.  God help  them, they might not only be in negative equity but might have invested  whatever savings they had in bank shares which have completely gone  down the toilet.  There are many individuals in this State who, through  no fault of their own, are caught in a debt trap.  Some individuals are  caught in that debt trap through their own irresponsibility.  Not  everybody is there for reasons beyond their control.  However, there are  thousands of people who are there for reasons beyond their control.   They have been hit by a fiscal and economic tsunami.  They are  individuals who perceived themselves as being in secure employment and  then found themselves unemployed.  They are individuals who were running  businesses that appeared to be successful, but who, because of the  failure of others to pay debt, have found themselves in debt with other  businesses, perhaps companies going into liquidation, non-corporate  businesses, SMEs or single-ownership businesses that have been wound up.   Many people are in trouble.


  The issue is  that the banks must constructively engage with this legislation.  As I  have said in the context of the personal insolvency arrangements, there  are options for a financial institution with secured debt, be the  secured debt a home loan or another form of loan.  Based on the  individual circumstances of the debtor concerned, arrangements will  clearly need to be put in place that are either debt forbearance or  involve some aspect of debt forgiveness.  There is no doubt we know  financial institutions will engage in debt forbearance.  We know of in  excess of 80,000 home loans where debt forbearance arrangements have  been put in place, some of a temporary nature and some of longer  duration.  There are individuals who have benefited from debt  forbearance arrangements and have now worked themselves out of that and  are now paying full capital and interest.


  The  area in focus is that of debt forgiveness.  Where individuals are  genuinely insolvent and cannot, as opposed to will not, pay their  monthly repayments, who are burdened by other debt and may be living in  negative equity, to what extent will the financial institutions engage  in debt forgiveness and write down?


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## Steve Thatcher (2 Jan 2013)

Yes the bankruptcy lasts only for three years but importantly the bankrupt can be asked to contribute income for up to five years after the bankruptcy comes to an end.
So the bankruptcy is over but the person subject to the bankruptcy order may not just be able to assume that they can get on with their lives again. If that person starts to be successful, an application can be made for an income order. That is very clear

_The official assignee has discretion, first, as to whether he or she makes that application and, second, as to how much that application is for. It will be for the courts to determine how to deal with these applications and they must deal with them in circumstances in which individuals who have exited bankruptcy no longer have any of the constraints or difficulties of being a bankrupt. The person is free to get on with his or her life, to create another business and to generate income in whatever way he or she chooses. If the person is successful in that, it may be fair and reasonable for the person to discharge some additional portion of debt. There will be circumstances where that is appropriate and there clearly will be all sorts of circumstances where that is not appropriate. From the perspective of a creditor, whether secured or unsecured, a financial institution or another party, there is no guarantee of the outcome of making such an application to the courts.

_What is not clear from the above is whether the application has to be made during the three years of the bankruptcy or if it can be made after. A strict reading of the above reply seems to suggest that if a person discharged from bankruptcy then makes money, an application could be made. 
That would make bankruptcy in Ireland very different from other jurisdictions.

Steve Thatcher
[broken link removed]


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