# Should the bankruptcy period be reduced to one year?



## Brendan Burgess (7 Jun 2015)

The Oireachtas Committee on Justice has been asked to consider Willy Penrose's proposal to reduce the bankruptcy period to one year.  The Committee has invited submissions by 19th June.  You can find out more here:
*Submissions requested on bankruptcy term reduction*

I have attached the Opening Statement submitted by Chris Lehane of the Insolvency Service to the Oireachtas Justice Committee on 27th May 

I will probably make the following submission

1) A one size fits all of 1 year or 3 years is not appropriate. Is 1 year appropriate for a very large debtor who has messed the Official Assignee and his creditors around? Is 3 years appropriate for an individual who has made a few bad decisions but who has cooperated fully with the OA?

I would suggest that the default period be 3 years but that the bankrupt could apply to be discharged at any time after one year.  Furthermore, the OA should be allowed to extend the term of the bankruptcy to 6 years where the bankrupt has not cooperated or where they have hidden assets or income.

In fact, the term should be 3 years after full disclosure of assets and income has been made. This would encourage people to engage fully and honestly as soon as possible.


Brendan


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## Brendan Burgess (7 Jun 2015)

Other useful discussions

*Would changing the bankruptcy term to one year reduce repossessions?*

*What is bankruptcy? *from the Citizens Information Board

[broken link removed] from the Insolvency Service 

[broken link removed] from the Insolvency Service


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## Brendan Burgess (7 Jun 2015)

from the ISI's guide 

How long does bankruptcy last?
You will normally be automatically discharged from bankruptcy after 3 years.  This period could
be shorter if you can come to a settlement with your creditors. More information about early
discharge options is available on the ISI website. This period could be longer if you do not fully  
co-operate or if you fail to disclose all of your property.  While bankruptcy normally ends after 3
years, ownership of your unsold property will remain with the Official Assignee, until sold.


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## Brendan Burgess (7 Jun 2015)

Section 85

“Automatic discharge from bankruptcy.
85.— (1) Subject to ...section 85A every bankruptcy shall, on the
3rd 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.

Objection to automatic discharge from bankruptcy.
85A.— (1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.
(2) An application under subsection (1) shall be made on notice to the bankrupt and where made by the trustee in bankruptcy or a creditor, notice shall also be given to the Official Assignee.
(3) Where it appears to the Court that the making of an order pursuant to subsection (4) may be justified, the Court may make an order that the matters complained of by the applicant under subsection (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of section 85.
(4) Where the court is satisfied that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt, the Court may where it considers it appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.

(5) Where the Court has made an order under subsection (4), no further application may be made under subsection (1).


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## 44brendan (8 Jun 2015)

That appears to be a reasonable submission Brendan! There appears to be no valid reason as to why a co-operative bankrupt should not be discharged in 1 year.
The concern I had with the 1 year is the sabbatical type bankruptcy. I.e. Insolvent debtor with a good employment/trade/profession takes a 1 year sabbatical and declares bankruptcy. has minimal income during this 12 month period and then resumes his employment & full salary after discharge. This could be resolved by including a condition to the discharge that a portion of any increase in income in the 3 years following discharge could be acquired by the Official Assignee to meet a 3 year PIA to creditors.


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## epicaricacy (8 Jun 2015)

44brendan said:


> That appears to be a reasonable submission Brendan! There appears to be no valid reason as to why a co-operative bankrupt should not be discharged in 1 year.
> The concern I had with the 1 year is the sabbatical type bankruptcy. I.e. Insolvent debtor with a good employment/trade/profession takes a 1 year sabbatical and declares bankruptcy. has minimal income during this 12 month period and then resumes his employment & full salary after discharge. This could be resolved by including a condition to the discharge that a portion of any increase in income in the 3 years following discharge could be acquired by the Official Assignee to meet a 3 year PIA to creditors.



One can easily circumnavigate this by successfully petitioning for bankruptcy in the UK.


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## Brendan Burgess (8 Jun 2015)

44brendan said:


> The concern I had with the 1 year is the sabbatical type bankruptcy. I.e. Insolvent debtor with a good employment/trade/profession takes a 1 year sabbatical and declares bankruptcy. has minimal income during this 12 month period and then resumes his employment & full salary after discharge.



Excellent point which I will incorporate. 

The Official Assignee should be able to certify that the bankrupt has cooperated fully, which includes maximising their earnings, or at least, not reducing their earnings. 

The one year discharge could be conditional. If information comes to light subsequently that they were messing, the bankruptcy would continue.


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## Brendan Burgess (8 Jun 2015)

epicaricacy said:


> One can easily circumnavigate this by successfully petitioning for bankruptcy in the UK.



While that is true for some people, we should have proper laws in this country and not rely on the UK to clean up our mess.

Brendan


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## 44brendan (8 Jun 2015)

epicaricacy said:


> One can easily circumnavigate this by successfully petitioning for bankruptcy in the UK.


I agree Epi! However, there is a certain level of hardship in transferring fully to the UK for 12 months. many people I know have considered this option but constantly postponed it because of the effect on both themselves and their family. I'm not sure whether the UK system does fully permit a UK bankrupt to take such a sabbatical and resume highly paid employment within 12 months without any penalty!!
This would definitely not be fair to creditors and would be a far better option to an insolvent person than a PIA!!


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## epicaricacy (8 Jun 2015)

Hi Brendan44

My wife and I were in the UK for 6 months in total. We successfully petitioned at the beginning of month 6, completed our telephone interview with the OR 3 days later and remained (unnecessarily) for another 2 weeks. Only the real high rollers need to remain in the UK for the 12 months. We could have returned to Ireland within 5.5 months.
If I were facing bankruptcy again - I would go the UK route, despite its difficulties. The 3 year PIA suggestion, coupled with the idea that one would have to maximise earnings would make the UK option even more of a no brainer.
We need to make the Irish System  as similar to the UK system as possible - especially if people are to be encouraged to hand back their properties to the banks.
BTW - in the UK, the courts are only interested in current income.


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## Brendan Burgess (8 Jun 2015)

How relevant is the one year or three year period? 

Is the income payments order period of 5 years not more critical?  

If someone struggled for 5 years trying to keep a business afloat or trying to pay an unsustainable mortgage, and then eventually they apply for bankruptcy, the total period is 10 years which is a huge portion of anyone's life.  And it's probably at the time when they are most economically and socially productive. 

If an ordinary person has engaged with their creditors e.g. in MARP for a few years, then loses their house, then goes bankrupt, I think that is enough for anyone. They should get a fresh start immediately. 

On the other hand, if someone has multi-million euro property loans and has been playing the system for years, maybe 5 years is not enough. 

Brendan


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## 44brendan (8 Jun 2015)

Thanks' EPI. The system appears to have worked well for you and I'm happy that you got through your difficulties. I also take your point that we do need to simplify the Irish system. I am really surprised that the UK system is so simplistic! Taking your point at face value it would encourage anyone who is insolvent to use bankruptcy as a first rather than last resort, if they can take a 6 month sabbatical from their employment

Brendan! Your commentary is apt if the income order were based on a realistic assessment of ongoing income rather than a PIT scenario. Why not deflate your income if that were the norm?


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## epicaricacy (8 Jun 2015)

Brendan

For us,  the 1 versus 3 year discharge period was more important in our decision making.

Most people who go the Eng / Wales route 'consciously' avoid the imposition of the dreaded 3 year IPA /IPO.


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## epicaricacy (8 Jun 2015)

44brendan said:


> Thanks' EPI. The system appears to have worked well for you and I'm happy that you got through your difficulties. I also take your point that we do need to simplify the Irish system. I am really surprised that the UK system is so simplistic! Taking your point at face value it would encourage anyone who is insolvent to use bankruptcy as a first rather than last resort, if they can take a 6 month sabbatical from their employment
> 
> It would have to be a minimum 18 month sabbatical from their well remunerated employment due to the possibility of having an IPO attached in the 12 month discharge period.


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## epicaricacy (9 Jun 2015)

Stuboy's adverse experience of the 5 year IPO would put people off the Irish system. 
It's worth remembering that as of April 1st 2015 - the 48 month Debtor Contribution Order (DCO) replaced the 3 year IPO in Scotland.


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## DebtCert (10 Jun 2015)

It is 48 months from date of adjudication here too, unless the person does not co-operate with the OA.


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## Nobizere (25 Jun 2015)

I'm working on a submission. (It's amazing how difficult it can be to keep personal circumstance out of it and stay on point). Can somebody explain if a payment order is likely to change during the period after bankruptcy?


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## Matthew Moore (25 Jun 2015)

Nobizere said:


> I'm working on a submission. (It's amazing how difficult it can be to keep personal circumstance out of it and stay on point). Can somebody explain if a payment order is likely to change during the period after bankruptcy?



Hope the submission is going well!

The OA must seek a Income Payment Order (IPO) before you are discharged. In the first instance, he will seek an Income Payment Agreement (IPA) at the start of the bankruptcy. This IPA is an agreement between you and the OA, no courts involved. Just before you are discharged he will seek an IPO as the IPA would have little legal standing should you decide not to pay it post discharge. He has stated that he will only seek a 1 year IPO in most cases. If he wants to vary that order he will have to go back to the court, regardless of whether you have been discharged or not.


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## Silvio Dante (8 Jul 2015)

http://www.independent.ie/irish-new...-backing-from-justice-committee-31362850.html


Well done to all who made submissions.
I have little doubt they made an impact on the committee's final decision.
Hopefully this can now become law within months.

For tonight at least let's all take a well earned clap on the back.


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## Stuboy (9 Jul 2015)

Examiner:
http://www.irishexaminer.com/ireland/cut-the-bankruptcy-term-to-one-year-says-committee-341511.html
IT:
http://www.irishtimes.com/business/...kruptcy-term-be-reduced-to-one-year-1.2278244


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## Silvio Dante (9 Jul 2015)

http://www.rte.ie/news/player/2015/0709/20809973-calls-for-a-reduction-in-bankruptcy-period/

Very good interview this morning on Radio 1 with David Stanton chair of the Justice committee who made the recommendation.
Listen to the last sentence in interview, very encouraging.


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## breadandjam (10 Jul 2015)

Well done to those who made submissions and you especially Brendan for your efforts.


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## epicaricacy (16 Jul 2015)

I just received an email from Neo Financial which appears to indicate that the punitive 3 year regime will continue. The following are some quotes form the mail:

'1YEAR BANKRUPTCY DEAD FOR NOW'

'AGAIN it seems as if the government have stood firm behind banks and creditors. After all the lobbying they have ignored the Finance Committee's recommendation for 1 year bankruptcy.'

'The watered down 'bank veto' for insolvency cases was passed yesterday in the amended Personal Insolvency Act, but no mention of the much needed and much demanded 1 year bankruptcy'.


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## Stuboy (16 Jul 2015)

yes, I received the same e-mail, but this was never supposed to be included in the Personal Insolvency act amendment.


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## Gerry Canning (16 Jul 2015)

It seems odd to yet again see Government ignoring a Committee?

Is it just me;
 but these (ignorings) seem to focus on protecting Banks? eg changing 6 year rule eg Variable rate mortgages ?eg bankruptcy to one year?


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## Silvio Dante (17 Jul 2015)

The banks are not opposed to the reduction and Stuboy is correct, the legislation regarding the bank veto is totally unrelated to the proposal on reducing to one year.
But would I be certain it will go through in 2015?
No there would still be reason to believe Finance in particular might resist it.


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