One-year bankruptcy rule change to end debt ‘punishment’

Bankruptcy applications are expected to soar after new rules came into effect reducing to as little as a year the period that employment and credit restrictions apply to bankrupt individuals.

The changes, which see the bankruptcy term reduced to just a fraction of the 12 years which applied up to 2013, were described as “revolutionary” and a “fundamental shift in attitudes towards indebtedness”.

Under the Bankruptcy (Amendment) Act, people declared bankrupt will have their assets sorted, sold, or returned to them, and be free to resume normal business and financial dealings after a year instead of enduring years of wrangling with creditors.

They will have to hand over a portion of any income for three years but that is a reduction on the five years which previously applied.

While applicants still have to try to sort out their debts through a debt-settlement arrangement or personal insolvency arrangement first, it is expected the numbers who eventually go for bankruptcy will increase dramatically.

Around 480 bankruptcies were approved last year, compared to just 58 in 2013 and single digit numbers in the mid-2000s.

Lorcan O’Connor, head of the Insolvency Service of Ireland, said he anticipates applications to more than double this year.

“There has never been a better time to take the first step to solvency and a fresh start,” he said, urging anybody burdened with debts they can not pay to explore their options using the ISI website backontrack.ie as a starting point.

Justice Minister Frances Fitzgerald said the rules were designed to give hope to people in genuine financial distress. “The act is a significant reform of our bankruptcy laws and reflects a fundamental shift in attitudes towards indebtedness,” she said.

“Our legislation no longer punishes people who, in most cases, through no fault of their own, find themselves with intractable debt.”

Ms Fitzgerald said bankruptcy would not become an easy option as the law tightens up requirements for open disclosure of assets. The High Court can now extend the bankruptcy term to 15 years if an applicant fails to co-operate.

David Hall of the Irish Mortgage Holders Organisation welcomed the law.

“This represents a revolutionary change for those struggling to deal with unsustainable debts and unreasonable creditors,” he said. “For the first time debtors have a mechanism to free themselves from creditors quickly and start anew.”