Bankruptcy is not a crime but can be a solution towards recovery
BETWEEN January and September last year, 19 people in the country were declared bankrupt, up from 17 the previous year.
Bankruptcy has become an imminent reality for many people here. In other jurisdictions such as the US, 1.5 million people declared bankruptcy — 0.5% of the population. The corresponding figure here would be 20,000.
In the US, it is regarded as an unpleasant but effective method of dealing with a difficult financial position, something that the person in question can work their way out of in a timely fashion; in other words, it’s a solution.
In Ireland, however, it’s similar to a custodial sentence, appearing to be intended as simply a deterrent. With the failure of the Celtic Tiger behind us, we’re probably a little late for a deterrent.
The law governing bankruptcy has generally been accepted to be antiquated, and increasingly unrealistic in light of the recession. The Bankruptcy Act 1988 overwhelmingly favours the rights of a creditor over the rights of the debtor and as a result, the consequences of being adjudicated bankrupt are draconian.
Bankruptcy is essentially a process whereby the property of an individual who is either unwilling or unable to pay his or her debts is transferred to a person appointed by the High Court (the Official Assignee). The Official Assignee is entrusted with ensuring that the assets of a debtor are realised and distributed amongst their creditors in a fair and equitable manner whilst also providing some form of protection for the debtor’s future income and their ability to make a living after being discharged from bankruptcy.
The most notable feature of Bankruptcy Law here is that 12 years must expire before the High Court will even consider “releasing” a person from bankruptcy. However, bankruptcy can become like a life sentence with cases before the courts of people remaining in such financial purgatory for 20 to 30 years.
The act allows the bankrupt to retain “such articles of clothing, household furniture, bedding, tools or equipment of his trade or occupation or other like necessaries for himself, his wife, children and dependent relatives residing with him, as he may select, not exceeding in value €3,175 or such further amount as the court on an application by the bankrupt may allow”.
While the interpretation of this is somewhat more flexible, it will be of little comfort to anyone who finds themselves in this precarious position.
However, despite the severe punishments bestowed on the individual, bankruptcy proceedings do not always result in a satisfactory payment of debts and the length of time it takes to realises and distribute the assets, coupled with the heavy costs involved, would discourage all but the most determined creditors from following any bankruptcy proceedings through to their conclusion.
While it may be a logical solution to financial agony for people in other countries, in most cases in Ireland, it simply does not make sense to petition to have a debtor adjudicated bankrupt or for a debtor to petition to be adjudicated bankrupt.
For those looking to relocate, it would appear that anyone can declare themselves bankrupt under British law, provided that they are domiciled in the place that they wish to be declared bankrupt. You can also declare yourself bankrupt in an area if you carried on business there during the last six months.
Under new legislation published by Justice Minister Alan Shatter, people will be released from bankruptcy after five years once certain conditions are met.
The Civil Law (Miscellaneous Provisions) Bill 2011 makes certain amendments to the 1988 act which will also automatically end a bankruptcy on the 12th anniversary of the adjudication order. This will “release” 300 people from bankruptcy who currently exceed the 12 years.
To apply for release from bankruptcy after five years, the bankrupt will be required to have discharged the expenses, fees and costs of the bankruptcy and the preferential payments. The court will also have to be satisfied that the bankrupt’s estate has been fully realised and all property acquired after the bankruptcy has been disclosed.
The Law Reform Commission has published proposed legislation which makes 200 recommendations for reform and also encloses a draft Personal Insolvency Bill.
Under Ireland’s Memorandum of Understanding with the IMF, new personal bankruptcy legislation must be passed by the first quarter of 2012.
It is hoped that the less draconian laws will release business people back into the economy so that they may start afresh.
The fact remains that in Ireland we are not using the bankruptcy legislation to full effect and best practice can and should be learned from our counterparts in other countries.
We need to stop regarding bankruptcy as a crime and consider it as a solution that will lead to the financial recovery of those caught in the tiger’s trap.
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