Bankruptcy due to tax debts on rise

The number of people adjudicated bankrupt because of a tax debt has increased this year, new data shows.

From January to July 2017, 12 people, with combined tax debts of almost €9.94 million, were adjudicated bankrupt following an application from the Revenue Commissioners to the High Court.

In 2016, there were eight such adjudications for the entire year, at a value of almost €6.17 million, and in 2015, there were 11, worth €8.88 million.

The average value of the tax debt per person this year was more than €828,000, lower than in 2016, when the average was €1.1 million, but higher that 2015, which had a figure of more than €560,000.

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Since the beginning of 2015, revenue has applied to make 42 people bankrupt and, in total, 31 people have been adjudicated. They had combined tax debts of almost €25 million.

The debts included unpaid VAT, PAYE, corporation and capital gains tax.

The Revenue Commissioners initiate a bankruptcy by applying to the High Court. The process involves a court hearing and time is usually given for parties to come to some arrangement. But if no agreement is reached, the debtor will be adjudicated bankrupt.

Once that happens, all of the person’s property transfers to a State official, the Official Assignee in Bankruptcy, so that it can be sold to meet the person’s debts.

Secured debtors

Any proceeds are shared out, with secured debtors, such as a mortgage-holder, given priority. The Office of the Revenue Commissioners is categorised as a preferential creditor and is given priority over, for example, an unsecured creditor, such as a person who supplied goods for sale to the debtor.

A bankrupt person is normally discharged from bankruptcy after a year, provided he fully co-operates with the process. Surplus income must continue to be paid towards the debt for three years. All unsecured debts are written off, and the bankrupt may or may not lose his home, depending on the circumstances and the value of the debt.

In a statement, a spokeswoman for the Revenue Commissioners said its clear preference always is to engage with taxpayers and businesses that are experiencing cash-flow difficulties rather than to deploy debt collection or enforcement sanctions.

“The objective always is to secure a mutually satisfactory payment arrangement and the success of our debt management programme is evidenced by the small number of bankruptcy cases initiated by Revenue,” she said.

“Cases are referred to an external solicitor only as a last resort to ensure the collection of debt for the exchequer.”

She also said bankruptcy cases “normally relate to an inability to pay all debts, rather than specifically an inability to pay tax”.

“Furthermore, cases can take a number of years to progress through the courts and an adjudication in one year is likely to relate to a bankruptcy petition from an earlier year,” she said.