The consequences of bankruptcy for the bankrupt
1. All of the bankrupt debtor's property at the date of the making of the bankruptcy order (called the " order of adjudication ") transfers to the Official Assignee with the exception of necessaries up to a value of â‚¬3100 or more if the court allows; all property which the bankrupt acquires after the date of the order of adjudication transfers to the Official Assignee if and when the Official Assignee claims it;
2. The bankrupt's salary or pension is liable to being appropriated by the court for the benefit of the creditors subject to any provision the court may make to meet the family responsibilities and personal situation of bankrupt;
3. If (s)he obtains credit of â‚¬650.00 or more without disclosing the bankruptcy, the bankrupt is guilty of an offence;
4. If (s)he trades in a name other than that in which s(he) was adjudged bank-rupt without disclosing the latter name , the bankrupt is guilty of an offence;
5. If the bankrupt acts as a director, manager, auditor, liquidator or receiver of a company without leave of the court, s(he) is guilty of an offence ;
6. The bankrupt has certain legal obligations in connection with the administration of his/her estate, including the delivery up of his accounts or papers to the Official Assignee when requested; the delivery of his/her property to the Official Assignee, the filing of a statement of affair the giving of every reasonable assistance to the Official Assignee in the administration of his/her estate; and the disclosure to the Official Assignee of any property acquired by the bankrupt since the date of the bankruptcy order.
The consequences of bankruptcy for the creditor
The impact of a bankruptcy on a creditor will differ depending on whether the creditor holds security for the debt or not.
The preferential creditor
Certain kinds of debts are given priority for payment before other creditors may expect to receive a dividend. They include tax, rates and certain kinds of employee claims in respect of certain periods.
The unsecured creditor
1. can no longer exercise the ordinary remedies (e.g. execution, instalment orders, registration of judgement mortgages) available to a creditor;
2. must take benefit of the bankruptcy and unless the creditor has a preferential status, will rank equally with the other unsecured creditors;
3. is not entitled to claim contractual/judgement interest beyond date of adjudication unless a surplus arises in the bankruptcy;
4. must await discharge of the Official Assignee's and Petitioning creditor's costs, expenses, fees and preferential payments before receiving a dividend;
The secured creditor must elect whether:
(a) to rely upon the security held, realise the asset comprising the security, and prove for the unsatisfied balance following realisation or
(b) to value the security at a specific figure and prove as an unsecured creditor for the difference between this figure and the total debt owing or
(c) to abandon the security and prove as an unsecured creditor for the entire debt.
How is a person released from bankruptcy ?
A debtor may be released ( "discharged") from bankruptcy in a number of ways, set out below, all of which, however, require that enough funds must have been realised to cover the costs, fees, expenses and preferential debts arising in the bankruptcy.
Discharge after payment of debts in full
Where the debtor's creditors have been paid in full, together with such interest as the court allows. Where the bankrupt's property is sufficient to permit payment of interest at the rate payable on judgements, that rate will apply .
Discharge with the creditors' consent
Where all of the debtor's unsecured creditors consent.
Discharge after making composition with the creditors
Where the debtor has provided the Official Assignee with the funds needed to meet a settlement (called a "composition after bankruptcy" ) with his unsecured creditors - for a settlement to be effective, it must receive the support of at least sixty per cent in number and value of the unsecured creditors voting on it.
Discharge after paying fifty pence in the pound
Where the debtor's property has been fully realised and his/her creditors have received fifty pence in the pound on their debts.
Discharge after twelve years
Where the bankruptcy has lasted for twelve years, the debtor's property has been fully realised, and the court is satisfied that the debtor has disclosed any property acquired since bankruptcy and that it would be reasonable and proper to discharge the debtor from bankruptcy.
On being discharged from bankruptcy, any funds or property remaining are returned to the former bankrupt.
Are there alternatives to being made a bankrupt ?
Yes, there are. A debtor may enter into an arrangement with his/her creditors for the settlement of the debts due to them, and to avoid bankruptcy or other proceedings being taken against the debtor. Arrangements with creditors are of two kinds, voluntary arrangements and arrangements under the court's control.
A debtor may agree with his creditors collectively to pay them a proportion of the mount owing to them in full discharge of their debts, or may agree to transfer specific property to a trustee on terms that the trustee sell the property and distribute the proceeds of sale among the creditors. In either case, the agreement will be set out in a deed. For the deed to be effective, a copy of it, and of any document attached to it, must be registered in the Central Office of the High Court.
Arrangements under the control of the court
A debtor may ask the court for protection against proceedings being taken against him/her, so as to give the debtor time to present a proposal to his/her creditors, whether for the payment of a dividend on their debts or for the transfer of property to the Official Assignee to be sold and distributed among the creditors. For the proposal to succeed, the costs, fees , expenses and preferential debts must be paid in full, and the proposal must receive the support of at least sixty per cent in number and value of the unsecured creditors voting on it.
The consequences of bankruptcy for family members
Where the bankrupt owns, whether solely or jointly with another person, a dwellinghouse which is or has been the family home, the Official Assignee may not sell the home without obtaining permission from the court. Where such permission is sought, the court may postpone the sale of the home having regard to the interests of the creditors and of the spouse and dependants of the bankrupt as well as to all the circumstances of the case;
Where the bankrupt holds property jointly with his/her spouse, or another person, the bankruptcy causes the joint ownership to be split , and the Official Assignee and the non-bankrupt co-owner will then hold separate interests in the property.
A bankrupt is entitled to retain, as items excluded from seizure, articles of clothing, furniture and tools or equipment relating to his/her trade, or other necessaries for the family and any dependent relatives residing with the bankrupt, to a value of â‚¬3100.00 The bankrupt may apply to the court to increase that figure.
Where the Official Assignee applies to the court for the appropriation of part of the bankrupt's salary, income or pension, the court, in directing any deduction to be made, may have regard to the family responsibilities and personal situation of the bankrupt.
Social welfare and unemployment payments are not liable to appropriation.
Persons having commercial relations with a bankrupt
The following are some common examples of third parties having dealings with a bankrupt .
Property owned jointly with a bankrupt
Where a person owns property jointly with a bankrupt, the bankruptcy operates to split the joint ownership, and separate interests are then held in the property by the non-bankrupt co-owner and the Official Assignee.
Leases to the bankrupt
A covenant in a lease for forfeiture of the lease in the event of the lessee's bankruptcy is void as against the Official Assignee. On the other hand , the Official Assignee may , with the permission of the court, disclaim a leasehold interest which contains onerous covenants at any time within twelve months from the date of the bankruptcy order, or later if the court permits. In that case, the landlord may make a claim as a creditor in the bankruptcy for any damages incurred by the disclaimer. However, the court may, before considering the Official Assignee's request, require the Official Assignee to put the landlord or others affected on notice of the request, and may impose conditions on any disclaimer. The Official Assignee is precluded from disclaiming a leasehold interest where a party affected has requested him in writing to decide whether or not to disclaim , and the Official Assignee has not replied within twenty-eight days indicating an intention to disclaim. A landlord who has distrained goods of a bankrupt lessee within three months before the bankruptcy order will share in the proceeds of sale of the goods on an equal footing with the preferential creditors of the bankrupt.
A partnership in which the bankrupt has been involved is dissolved by the bankruptcy, unless the terms of the partnership provide for it to continue.