Key Post How long does bankruptcy last - 3 years or 8 years?

Brendan Burgess

Brendan Burgess

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The official period for bankruptcy is 3 years.
At any time, the Official Assignee can apply for an Income Payments Order for up to 5 years so if he applies towards the end of the three years, the discharged bankrupt could be paying his creditors for a total of 8 years.

I understand that the current practice of the OA is as follows:

When a person is adjudicated bankrupt, they agree an Income Payments Agreement. This will be reviewed every 6 months or so and varied upwards or downwards.

If the bankrupt has fully cooperated with the OA during the three years, and if he has some surplus income, the OA will apply for an IPO for 1 year. So a cooperating borrower is completely free 4 years after adjudication.

If however, the bankrupt fails to cooperate e.g., they hide assets or income, the OA will apply for a 5 year IPO.
 
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From the OA's notes


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 .)


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.
 
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