Bankruptcy is a legal process whereby the assets and property of an individual who is unable or perhaps unwilling to pay their debts are transferred to an Official Assignee.

The role of the Official Assignee is to sell or otherwise dispose of the Bankrupt’s property and distribute the proceeds to the individual’s creditors.  The bankrupt individual’s interest in the family home vests in the Official Assignee as with all other property.  The only property that does not vest in the Official Assignee is essentials up to the value of €3,100 (or more if the Court allows).

If the Bankrupt is a sole owner of the legal estate, the estate vests in the Official Assignee subject to existing property rights of the spouse.  In this circumstance the Official Assignee may convey the family home by obtaining prior sanction from the High Court, without obtaining prior consent of the Bankrupt’s spouse.  The High Court may in some cases postpone the sale of the family home having regard for the interests of the creditors and of any spouse and dependants of the Bankrupt.

Should the property be under joint tenancy with the Bankrupt’s spouse, it is deemed that the spouse and Official Assignee then hold separate and undivided portions of the property.  In this instance, the effect of adjudication is to sever the joint tenancy and convert it into a tenancy in common.

Whether the property is in the sole name of the Bankrupt or jointly held, a spouse would usually be advised to seek to establish a benefit of interest on the basis that they either directly or indirectly contributed to the acquisition of the family home.  If a spouse succeeds in establishing a beneficial interest, the Official Assignee has the difficult task of realising a share of an asset which is co-owned by the spouse.  In these instances, the Official Assignee does not have the power to sell the home, but only his own share in the property, which will almost always require an order for the sale in lieu of partition.

It is likely that the High Court may take the view that where an insufficient amount would be raised for the creditors to warrant removing the family from their home, that it would become a matter for the secured creditor to proceed with any action.  The Official Assignee may take this view, on the basis that the amount realisable would not give a worthwhile dividend to creditors.  Frequently, the threat of proceedings would pressure the spouse to make an offer of composition to avoid a hearing, which is preferable for both creditors and the Bankrupt’s family.

Ref: S61 of the Bankruptcy Act 1988.

This article is written by Corporate Restructuring & Insolvency Senior, Catherine McKevitt:

t: +353 (0) 418 2095     e: catherine.mckevitt@fgspartnership.com

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