How Does Insolvency Or Bankruptcy Affect Your Credit Rating?

insolvency, bankruptcy.

People often ask how bankruptcy or insolvency affect credit ratings.

Take the example of somebody who is unwell and needs to go to the hospital for an operation. It’s fair to say that in the days and weeks post operation the patient will not be fully well – though they are now on a course to health.

So it is with a credit rating for people in insolvency or bankruptcy.

When a person is considering insolvency or bankruptcy it follows that their credit rating is poor. There will almost always have been multiple defaults. However, after insolvency or bankruptcy, the person is now on the way to a healthy financial position which will happen in time.

We find that in the case of Personal Insolvency people can access credit very quickly again.

In the case of bankruptcy, it will take some time and it may be necessary to use non-bank lenders initially where higher interest rates are charged. But over time a credit rating returns.

How Does Your Insolvency Or Bankruptcy Impact Co-borrowers Or Guarantors?

Insolvency, Bankruptcy

It’s important to remember that in Personal Insolvency and in Bankruptcy debts will be written off against only the borrower applying for insolvency or bankruptcy. As most loans that were taken out by more than one borrower are “joint and several” this means that where one party has been adjudicated bankrupt the full debt remains due from the other borrowers.

This is also true with guarantors. A guarantor’s liability is a contingent liability – in other words, the guarantor gets called upon where the principal debtor has defaulted. Where a borrower applies for insolvency or is declared bankrupt, there’s an automatic event of default which means that the lender can call upon the guarantor to make good on the guarantee.

 

In short bankruptcy and insolvency does not assist co-borrowers or guarantors and often makes their situation worse.

Will There Be A Payment Order After You Declare Bankruptcy?

Bankruptcy

 

Once you are adjudicated bankrupt you will furnish the Official Assignee with a Statement of Personal Interests.

This Statement will set out your income and your outgoings.

The Official Assignee has regard to the guidelines on Reasonable Living Expenditure needs as published by the Insolvency Service of Ireland. If your income is more than these guidelines the Official Assignee will ask you to agree to make payments to him for 3 years. The amount of this monthly payment will be the difference between your earnings and the guidelines.

If your income is at or below the guidelines no payments to the Official Assignee are required.

It is also possible to buy out the payments. So, for example, if the Official Assignee decided that you could afford €100 per month the full payment over 3 years would be €3600. The Official Assignee will agree to a discount on the €3600 if it is paid up front.

The benefit to having no payments or to buying out the payment is that you are no longer under review by the Official Assignee once you are discharged from bankruptcy. If you are making payments and your circumstances changes for the better, you are required to tell the Official Assignee. He can then require you to increase those payments during the remaining period.

What are the Implications of Bankruptcy for Company Directors?

Declaring bankruptcy is a significant decision for anyone. If you’re a company director, however, or plan to be one post-bankruptcy, then there are some additional bankruptcy implications you should consider.

During the one-year period of bankruptcy you are not entitled to be a director of a company in this state. This is important to know for people who are company directors prior to declaring bankruptcy in Ireland so that steps can be taken before bankruptcy to deal with this fact.

Often people will step down as director and appoint a replacement before they declare bankruptcy so that no issue arises.

After the one-year period has elapsed there is no impediment to return to be a director. 

The key thing to bear in mind then, is that you cannot be a director of a company for a period of one year after filing for bankruptcy in Ireland.

 

How will my pension be treated in bankruptcy?

man contemplting

In bankruptcy all your assets, except the necessaries of life, become vested in the Official Assignee. There are some exceptions to this rule and pension are one of those exceptions.

Put simply, your pension does not vest in the Official Assignee where it is not accessible for a period of at least 5 years after the adjudication.  In many cases this will mean that a pension is not affected by bankruptcy, but advice needs to be taken before adjudication to ensure this is the situation.

For example, we came across a case recently where the debtor believed that his pension was not accessible until he was 60 years of age. As he was 48 at the time of his bankruptcy he assumed his pension was safe. However, his pension arose from a previous employment. When he ended this employment his employer (as is normal practice) used the pension fund to acquire a buy out bond. A buy out bond is accessible from the age of 50. As the debtor was 48 at the time of his adjudication the fund was accessible within 5 years, and the monies therefore became vested in the Official Assignee.

If the debtor had been aware of this before his adjudication he could have acquired a new pension product that was not accessible until the age of 60 thereby securing the fund from the consequences of bankruptcy.

In other cases where the debtor is of an age so that the pension is accessible the purchase of an annuity product may be a solution. Annuity products are generally considered bad value but they do give an income for life. This is obviously preferable to the loss of the fund in total.

Again, prior to considering adjudication in bankruptcy advice should always be taken on the effect, if any, this will have on pensions.

I hope you found this useful. Please feel free to leave a comment below if you have any further questions abotu pensions inbankruptcy.

What are the costs of Bankruptcy in Ireland?

calculator on deskThere are two key costs associated with filing for bankruptcy in Ireland.

The Fixed Cost of Bankruptcy in Ireland

The fixed costs of bankruptcy are less than €500. This covers the costs of the Court papers necessary to apply for bankruptcy in Ireland.

Personal Insolvency Practitioner (PIP)

It’s always advisable that advice be taken from a solicitor or other professional in advance of seeking adjudication.

As part of the bankruptcy process you are required to meet a Personal Insolvency Practitioner (PIP) who has to analyse your financial circumstances and determine whether a Personal Insolvency Arrangement or Debt Settlement Arrangement is more appropriate. If the Personal Insolvency Practitioner determines that bankruptcy is the best solution he or she will be required to provide written evidence of this to the Court.

The application is made to the High Court and engaging the services of solicitor or counsel to deal with this will have added costs.

Where you have a pension, it is always appropriate that advice be taken as to the possible effect of bankruptcy on those assets.

A Personal Insolvency Practitioner may charge for this service. 

So, the costs will depend, in the main, on the advisors you choose to engage.

It should be noted, however, that there are some charities who offer these services at reduced or zero rates.

For more information on bankruptcy in Ireland please click here.

What happens to your family home in bankruptcy?

image of a family hOne of the most frequently asked questions about bankruptcy in Ireland is “what happens to my family home in bankruptcy”? It’s natural that this concern is high on the agenda for people in insolvency and facing debt arrears they cannot overcome.

It’s important to understand what the consequences of bankruptcy may be for the family home. So, in this article I want to address some of the key points relating to bankruptcy and the family home. This will help you to grasp the potential consequences for your own particular bankruptcy situation.

When you’re adjudicated bankrupt…

The first thing to note about your family home in bankruptcy is that,  when you are adjudicated bankrupt all of your assets vest into the Official Assignee (OA). Exceptions include the necessaries of life up to a value of €6,000 and pensions in certain circumstances.

Your family home is not an exception. Your ownership or interest in a family home or principal private residence will vest to the Official Assignee. 

However, the family home in bankruptcy is treated differently to other assets.

With other assets the OA will sell them to raise money to pay to creditors. But the OA is not entitled to sell a home without permission of the High Court and if he/she has not moved to sell the home within 3 years the property automatically vests back to you.

In general, the OA will not move against a home until after the second year, post-bankruptcy.

During the third year he/she will get a valuation of the home and if it is in negative equity (the value is less than the mortgage) the OA will simply allow the property to vest back to you (the former bankrupt) – if you consent.

However, if the property is in positive equity the OA will be under a duty to realise that positive equity by seeking the sale of the interest.

What about homes that are co-owned by someone who is not bankrupt?

In many cases homes are co-owned and where the co-owner, often a spouse, has not been bankrupt an issue arises.

Ideally the OA would want the co-owner or the former bankrupt to purchase the interest in the home from him/her.

Where this is not possible he/she will need to seek the sale of the property.

However, a Court has discretion and is unlikely to force the sale of a property owned in part by somebody who is not bankrupt without taking the interest of that co-owner into account.

The Court could, at the very least, postpone the sale.

As this area is new to Irish law we will have to wait and see how the Courts deal with it and how they treat the interest of non-bankrupt co-owners where there is positive equity in the property. 

Mortgage and Bankruptcy

It’s always important to remember that where the home is mortgaged, bankruptcy does not affect the mortgage and it will be necessary to continue to pay the mortgage to retain the home.

If, however, a bankrupt wants to leave the home the debt will have been written off against him/her in full.  For this reason it can be advantageous in certain circumstances.

Every bankruptcy situation is different

Every insolvency and bankruptcy situation is different, and so this article is meant only as a rough guide for what can happen to your family home in bankruptcy. It’s always important to consider with advisors the full implications of bankruptcy on your individual circumstances before embarking on the bankruptcy process.

If you have any questions on this topic or want to share your own experience or advice on bankruptcy and the family home please feel free to leave a comment below. In the meantime, if you would like more articles and advice in the area of mortgage arrears, insolvency and bankruptcy why not sign up to the New Beginning newsletter.

Thank you!

How Does Bankruptcy Work in Ireland in 2017?

man considers filing for bankrupcy at his computerFiling for bankruptcy in Ireland in 2017 is a possibility for certain people whose insolvency cannot be overcome. If you – or someone you know -may be facing insolvency and considering declaring yourself bankrupt then it’s important to understand how bankruptcy works in Ireland.

This short article will provide a simple summary of bankruptcy procedures in Ireland by looking at three key areas: Eligibility for Bankruptcy, the bankruptcy process and the consequences of bankruptcy.

Let’s begin.

The 3 Criteria to Be Eligible for Bankruptcy in Ireland

  • In order to declare bankruptcy your debts must exceed your assets by at least €20,000.
  • The debtor must be insolvent, meaning that you are unable to satisfy creditors or discharge liabilities.
  • Before looking to declare yourself bankrupt you must first have attempted to resolve debt issue through Personal Insolvency.

The Bankruptcy Process in Ireland

  • The first step in the bankruptcy process is to complete a Statement of Affairs and a Statement of Personal Interests.
  • Them you will put forward an Application for bankruptcy to the High Court.
  • The final step is Adjudication.

 

The Consequences of Bankruptcy

Being legally declared bankrupt means that:

  • All if your debts are written off.
  • All of your assets (other than the necessaries of life) are transferred to the Official Assignee.
  • You may have to make payments to Official Assignee for up to 3 years following your declaration of bankruptcy.
  • You will be automatically discharged from Bankruptcy in 1 year.

 

There are a number of areas directly related to bankruptcy that you may have specific questions about. It’s important to know what you are getting into ahead of making a bankruptcy declaration and understand how being bankrupt will impact on different aspects of your personal and professional life.

I have many years experience handling bankruptcy applications and Personal Insolvency Agreements. The following are some of the most frequently asked questions around the subject of bankruptcy. I will be answering them with individual articles over the coming weeks. 

if you have another question please feel free to ask it in the comment box below or by sending me an email to info@newbeginning.ie and I will be sure to write an article and address it on this blog and add it to the  list below.

Bankruptcy in Ireland FAQs

What are the costs of bankruptcy in Ireland?

What are the consequences of bankruptcy for my family home?

How will my pension be affected by bankruptcy?

Will there be a payment order after becoming bankrupt?

What are the implications of bankruptcy on being a director of a company?

What are the consequences of declaring bankruptcy for co-borrowers or guarantors?