Number declaring bankruptcy to soar into the thousands
THE number of people declaring bankruptcy to escape their debts is about to soar into the thousands, the state insolvency agency has predicted.
The newly created Insolvency Service of Ireland (ISI) expects a huge surge in the number of people declaring bankruptcy, a resolution method recommended only for those very seriously in debt, documents seen by the Irish Independent reveal.
Following recent changes in insolvency laws, the agency predicts that bankruptcies will soar from minuscule levels to above 1,000 per year very soon.
"The number of bankruptcy cases in Ireland to date has been very small," documents from the ISI state.
"However, as a result of recent legislative reform, it is anticipated that there will be a significant increase in cases in the near future. Most estimates put the figure above 1,000 per annum over the next few years," the document states.
The ISI and the Department of Justice are so concerned about a forthcoming surge in bankruptcy applications that they are now seeking property management contractors, who will manage and rent out properties seized from people declaring bankruptcy.
The property managers will look after rental properties that have been handed over to the Official Assignee – a civil servant tasked with handling a bankrupt person's assets. Some properties could require management for months or even years if they are in negative equity.
Bankruptcy is only recommended for people with very serious debts and no other options. As well as handing over control of most if not all of their assets to the Official Assignee, people who have been declared bankrupt will find it almost impossible to get a loan in the State in future.
The legislative reform prompting the ISI's warning is a new insolvency law that came into effect last year, which offers a range of possible debt deals to distressed borrowers.
The law slashed the penalty period associated with bankruptcy from 12 to three years, and cut the fees associated with the process.
But these fees have been hiked only recently – meaning it now costs a minimum of €900 for each individual voluntarily seeking bankruptcy – after the Department of Justice more than doubled the stamp duty that has to be paid by those declaring themselves bankrupt.
The regime is now being reviewed in its entirety by the Government, just months after its introduction. The system, which includes less punishing options like Debt Settlement Agreements as well as the bankruptcy route, has been hampered by a very low uptake because many believe it is too costly and complicated.
As revealed by the Irish Independent, Justice Minister Alan Shatter plans to change the system once again and make it more similar to the UK's Individual Voluntary Arrangement – meaning cheaper and less bureaucratic.
A new protocol will be devised to streamline the insolvency process for people trying to work out deals with banks and other creditors.