Filing for bankruptcy in US may not protect individual in Ireland - expert

FILING FOR bankruptcy in the United States does not necessarily protect an individual from facing bankruptcy proceedings in Ireland as well, according to an expert.

However, it may be difficult for a creditor to seek to make bankrupt someone who has been declared bankrupt in the US if that bankruptcy is recognised in the Irish court.

There is provision under the Bankruptcy Act for cross-border recognition and assistance in bankruptcy matters, but this relates to bankruptcy within the EU.

An international convention on cross-border recognition of bankruptcy, the Uncitral Model Law on Bankruptcy, has not been incorporated into Irish law. Nor do we have an agreement with the US.

EU rules on cross-border recognition of bankruptcy obviously do not apply to the US.

If a US bankruptcy is to be recognised here, the US trustee would have to apply to the Irish courts for recognition, based on common law principles. However, according to a source familiar with this area, these principles are not very developed in relation to bankruptcy.

If there was competition between two jurisdictions as to which bankruptcy regime should apply, the deciding matter would be where the debtor’s “centre of main interest” was.

If a person makes a declaration that his “main centre of interest” is in a certain jurisdiction, there will be no one to oppose that and seek to have it declared elsewhere.

However, if a creditor can show the debtor had fled the jurisdiction in order to avoid his creditors, that in itself is a cause of bankruptcy.

In order to seek bankruptcy in the US, a person has to reside, have a place of business or own property there.

There are significant differences between the bankruptcy regimes in Ireland and the US.

In the US, there are two types of bankruptcy available to an individual – under Chapter 7 and Chapter 13 of the US Bankruptcy Code. A Chapter 7 bankruptcy offers immediate, complete relief of many oppressive debts. The person is allowed to keep certain exempt property, the value of which varies from state to state. Unsecured debt is discharged.

Income taxes less than three years old and certain other liabilities, like child support and property tax, are not discharged.

The bankruptcy stays on the person’s credit report for 10 years.

A Chapter 13 bankruptcy operates more like a corporate examinership in Irish law – allowing a person to have their finances reorganised under the supervision of a federal bankruptcy court, where the debtor undertakes to repay his creditors over a three to five-year period. Under a Chapter 13 bankruptcy, the bankruptcy stays on the person’s credit report for seven years.

The debtor generally gets to keep his property and the creditors get less than what they are owed.

In both cases, the bankruptcy is discharged earlier than in Ireland, where such a move takes 12 years.

Another major difference is that the Revenue Commissioners are preferential creditors in Ireland, and a debt to the Revenue Commissioners must be paid in full for the bankruptcy to be discharged.

This can be an onerous burden on traders with large debts to the Revenue.