New bankruptcy laws introduced

Legislation giving effect to changes in the bankruptcy code were signed into law on 3 December 2013 by the Minister for Justice, Alan Shatter.

Reduction in discharge period

A bankrupt person can now be automatically discharged from bankruptcy after 3 years, reduced from 12 years.

However the right to discharge, while automatic, is not absolute. The Official Assignee or a creditor can apply to the court to object to the automatic discharge. Where the court finds that the bankrupt failed to co-operate or has hidden or failed to disclose assets it can extend the period of bankruptcy for up to 8 years.

Effect for current bankrupts

Any existing bankruptcies for 3 years or more at today’s date will be automatically discharged after a period of six months.

Bankruptcy payment orders

An automatic discharge may not however be the end of the road for the bankrupt. The court, on application to it by the Official Assignee, has discretion to order a bankrupt to make payments to creditors in discharge of his debts for a period of up to 5 years.

Interaction with non-judicial arrangements

A debtor must now, when presenting a petition for bankruptcy to the Court, demonstrate that reasonable efforts have been made to reach an appropriate arrangement with creditors by making a proposal for a non-judicial arrangement (a Debt Settlement Arrangement or a Personal Insolvency Arrangement).

Also, the court must in all cases consider whether, having regard to the financial circumstances of the debtor, the matter would more appropriately be dealt with by the debtor entering into a non-judicial arrangement. If the court reaches such a conclusion, it has discretion to adjourn the hearing of the petition to allow such arrangements to be pursued.

There has also been a change made to the award of a creditor’s petitioning costs. Previously a creditor was entitled to an award for costs. The position now however, is that the court can exercise its discretion and in doing so must have regard to whether the creditor unreasonably refused to accept proposals made under a Debt Settlement Arrangement or a Personal Insolvency Arrangement.

Pensions

There has been a change made to the treatment of a bankrupt’s pension.  Previously, the general rule was that pension entitlements vested in the Official Assignee. The position now is that those pension payments to which a bankrupt is/may be entitled to do not form part of the bankruptcy estate. Exceptions apply however where payments have already been received or where an entitlement to receive them arises.

The Official Assignee in Bankruptcy now also has the right to seek an order from the court to have excessive pension contributions made by the bankrupt (within 3 years of the date of adjudication) vested in the Official Assignee so that they are made available for the benefit of creditors.

Increase in look back periods

The legislation has increased the time periods within which the court can overturn fraudulent preferences or dispositions of property at an undervalue.  The look back period is now 3 years in all cases.

For further information on this topic or any insolvency queries please contact Peter Kearney at pkearney@reddycharlton.ie