Mr. Christopher Lehane:

I will talk about four areas. First, I will highlight the significant changes made to the Bankruptcy Act and deal with my own role. I will then deal with two areas which I believe are of particular interest to the committee, namely, income payment orders and the treatment of the family home in bankruptcy.

As members are aware, there were significant changes made to the Bankruptcy Act which came into effect on 3 December. The most significant by far was the reduction in the automatic discharge period from 12 years to three. Another significant change is a requirement that one needs debt of €20,000 if either a creditor or a debtor is to petition for bankruptcy. Formerly, the figure was only €1,900. There is a requirement for a court to consider, with regard to both creditor and debtor petitions, whether it is appropriate to adjourn proceedings to allow a debtor to attempt to enter into a debt settlement arrangement or a personal insolvency arrangement. There is an increase in the amount of the estate that does not form part of the bankruptcy estate. This is called the accepted assets and the specified value has increased from €1,900 to €6,000. Pensions, where a person is adjudicated upon after 3 December, no longer form part of the bankruptcy estate, subject to the five year claim period, whereby, if a pension crystallises in the time, the official assignee can exercise his or her right in that respect. There is an increase pertaining to the avoidance provision for three years where there are fraudulent preferences, as in circumstances where one creditor would be preferred over another, where one would sell an asset under value or where one would make fraudulent transfers, commonly known as transfers to the spouse in advance of going bankrupt in an effort to keep an asset out the bankruptcy estate. There is a limit of five years on income payment orders. There was, under section 65, no limit on the period within which an income payment order could be brought in. The Act has significantly capped this figure at five years.

Regarding an application, the official assignee or a trustee in bankruptcy, if I am replaced by a private trustee, can apply to the court to have the period of bankruptcy extended. This can be extended for a further five year period beyond the three year automatic discharge period.

Another change which affected me was the change in the administrative structure pertaining to bankruptcy, whereby the office of the official assignee, formerly an office within the Courts Service, moved to the ISI. This is for very understandable reasons, given the synergies between the two insolvency processes.

I will now talk about my role. When a person is declared bankrupt, all of the property of that individual passes to me, or invests in me as official assignee. I have the same powers and rights of the person made bankrupt in respect of the property. My primary role is to investigate assets, gather them in and distribute them to the creditors.

It is, effectively, the equivalent of the liquidator.

The two issues that I believe are of particular interest to the committee are those of income payment orders and family homes and bankruptcy. An income payment order, as understood under the Act, can last for up to five years. The process within the office is that when a person is made bankrupt, on his or her adjudication, I assess his or her capacity to contribute towards the bankruptcy debts to see if there is a surplus - applying the reasonable living expenses criteria of the ISI - that he or she can contribute. Up until now, the practice has been that we have put in place agreements whereby we move into a process of applying for orders in respect of them. That is because under the law, the entitlement of the official assignee to apply for a order is that he or she must apply prior to discharge. In the absence of any provision that will enforce income payment agreements beyond the discharge period, it is a necessary requirement that I apply for income payment orders. If a bankrupt person has surplus income, an income payment order will be sought. It is in the interests of a debtor to co-operate in these matters in order that the income payment order is put in place at the earliest stage of a bankruptcy. In the normal course, he or she will be moving out of bankruptcy in three years; therefore, if he or she engages early, the five year period will start early and there will only be a two year period afterwards. If a debtor does not have surplus income initially but will at some stage in the bankruptcy, as official assignee, I will seek an income payment order but will generally limit the amount of the remainder of the five year period since adjudication. That effectively means that in the third year I will not seek an income payment order for five years in the normal course. I will discount the period within which in the course of the bankruptcy I have assessed the individual. If he or she does not have capacity or a surplus above reasonable living expenses, it is not the Armageddon certain individuals believe, whereby I would use it effectively to have a period of eight years of bankruptcy. It will depend on what the process is. One will find from the media that, unfortunately, there are individuals who evade the office and effectively go missing and I cannot locate them. Where people fail to co-operate, fail to disclose their income or simply fail to pay, it could be that by the time I eventually trace them and obtain their income it is in the third year. They will find that the five year period will extend for the full duration of the three year period.

The final topic I will deal with is the family home and bankruptcy. For obvious reasons, when people move into bankruptcy, they are concerned about what will happen to the family home. The Insolvency Service of Ireland has published a useful guide to bankruptcy that explains in a simple, step by step way, everything that happens when people move into bankruptcy, including their property, debts and income. We have also published a scenario pack giving practical examples of various family home cases. It deals in detail with the assessment of one's income, one's ability to pay if there is a surplus and how the role of the ISI official impacts on a person. It is always subject to whether one has the capacity to pay a mortgage to the extent that a financial institution will accept. I will be dealing with that issue in more detail.

For the benefit of the committee, I will set out the three key sections of the Bankruptcy Act concerning the family home. First, section 136 states an unsecured debt can only be claimed through a bankruptcy. Therefore, if one has an unsecured debt that is not recovered within the bankruptcy process, one has no opportunity outside the process to recover it. If one does not receive a dividend, that is it and the unsecured debt is written off. The section goes on to state, "This shall not affect the power of a secured creditor to realise or otherwise deal with a security in the same manner as they would have been entitled to realise or deal with it if the section had not been enacted". In my appendix, I will deal with how this operates in practice.

Section 44 of the Bankruptcy Act states that when a person is made bankrupt, all of the property of the bankrupt vests in me as the official assignee. Section 615 states, "The court shall have the power to order postponement of the sale of the family home, or shared home within the Civil Partnership Act, having regard to the interests of the creditors, of the spouse or civil partner, and dependants of the bankrupt", as well as the circumstances of the case. I will deal with this in more detail in Appendix 1. What happens, however, is that I cannot sell a family home; I must apply to the bankruptcy judge who can effectively delay it. The judge cannot absolutely say one cannot sell the home because if there is equity, the role of the official assignee is to effectively liquidate that equity. In that case, a bankruptcy judge will simply delay the process, having regard to all of these factors, including the family and dependants.

I have set out my five main policy views on how I will approach dealing with the family home. Where there is positive equity in the family home, all other assets will be realised before I have regard to the family home. The official assignee's interest in the family home will be sold to the spouse, where possible. When a person is made bankrupt, it splits the family home interest - half goes to the official assignee, while half remains with the spouse. The family home will not be sold earlier than six months after the adjudication order, unless to the spouse. The bankrupt will be offered the opportunity of doing a composition, effectively a deal, with his or her creditors with the proceeds of the other assets sold before the family home will be sold. It is not usual that there are two buy-to-lets and there is a pool of assets that become available within the bankruptcy estate, with me leaving the family home as the last asset. It is possible that the creditors might agree to the sale of the buy-to-lets, accept a pool of assets and effectively leave the person concerned in the family home.

A minimum sum of €5,000 will be sought by me for negative equity interest of the official assignee. When a person is made bankrupt, the interest vests in me. When a person is discharged from bankruptcy, that interest continues to vest in me. I will not approach the spouse of the person in negative equity. It may be that the full three year period has passed. At a minimum I will seek a sum of €5,000 for the spouse to buy me out of the half interest that continues to vest in me.

In Appendix 1 I deal with the three options of the secured lender when a person is declared bankrupt, the actions to be taken by me and the consequences for the debtor. In appendix 2, I set out the findings of a recent survey we carried out of bankruptcies in the past four years to establish the consequences of bankruptcy for family ownership.

I will briefly go through Appendix 1 to explain what happens when a person is made bankrupt. While it is true that the same levels of protection around the family home within a personal insolvency agreement, PIA, do not apply in bankruptcy, it is not automatically true that when a person is made bankrupt, he or sh e loses the family home. The First Schedule to the Bankruptcy Act sets out three options for a secured creditor. If a mortgagor - a person who is borrowing - goes bankrupt and the lender is considering his or her position, the First Schedule to the Bankruptcy Act sets out three options for what he or she can do. First, the bank can rely on its security and not claim in the bankruptcy. Second, it can abandon the security and claim for the full debt in the bankruptcy. Third, it can realise, sell the house and claim for the shortfall.

Where there is positive equity, the financial institution sells the property. This will only arise if the mortgage is not being paid. In the normal course, if the mortgage is being paid, banks do not bankrupt people.

Banks do not seek to sell a family home if someone is paying the mortgage. It would be absolutely ludicrous and crystalise the negative equity. Where there is positive equity and no capacity to pay and the mortgage has not been paid, the banks have the right to sell the family home under the mortgage deed. If the mortgage is not being paid on terms acceptable to the financial institution, it can sell the family home and claim interest on the mortgage up to the date of the sale. If there is any balance, it is given to me as official assignee. However, there may be judgment mortgages on the property constituting prior charges to the right of the official assignee, who effectively gets the unsecured assets. If there is no judgment mortgage on the family home, the proceeds will be paid to me. If we look to the right, we will see what the consequences are in the case. The house is sold and the person has lost the family home. However, the surplus from the sale proceeds might generate a pool of assets and that might mean that the person within the bankruptcy can go to his or her creditors and say: "I have €60,000 and owe €300,000. Will you accept a dividend of this and release me from bankruptcy?" In those circumstances a person could get out of bankruptcy much more quickly than in the three year automatic discharge period. If the family home is gone in the classic situation where a man has been made bankrupt, I would allow, as official assignee, an allowance for accommodation for renting for that individual and his family within the reasonable living expenses with which members are familiar.

Where there is positive equity of, say, €20,000, and the mortgage is being paid on a family home, my role is to realise that equity for the benefit of creditors. It will be half of that figure, or €10,000. I will go to the wife and say to her: "Do you have the capacity to pay?" I have already said the process can last six months or longer. I do not pressurise them immediately to sell the family home for €10,000, but section 61(4) of the Bankruptcy Act applies. Even if I am selling to the spouse, I must obtain a court order. It is a formality before the court when I am selling to the spouse. If the house is sold to someone other than to the spouse, the position is as I have set it out.

Where there is negative equity, the issue is whether the mortgage is affordable. Does the borrower have the capacity to pay? The fact that the property is in negative equity is irrelevant. If the financial institution sees that the mortgage is being paid, it will not sell the family home. That would be to crystalise the negative equity, which would never be done. However, if there is negative equity, the position of the official assignee is that there is nothing for him to sell on the open market. The issue for him is not whether he will sell the house, but whether the mortgage payment the bank seeks is reasonable having regard to the family requirements, including dependants. Do they need a five bedroom house in an expensive part of Dublin which carries a massive mortgage and a requirement to pay a mortgage of €4,000 to €5,000? That sum is way beyond what would be enough to provide in the normal course for that family. In that case, I will not allow the mortgage payment and the family would have to move. What is allowed within reasonable living expenses is that which is sufficient for the family and not a balloon mortgage payment. They should cut their cloth and move. Otherwise it is to expect creditors to maintain a lifestyle which is gone as the tiger economy has collapsed.

The second option for a secured creditor is to abandon the security. This is very rare. When a bank has security over a house, it will not walk away from its security which is the priority it has over unsecured creditors. It practically never happens. It would only happen if there was a prior mortgage and, in effect, the security has no value. The third option, which is being taken now, is to sell the family home. The financial institution realises its security and claims the shortfall in the bankruptcy as an unsecured creditor. As a financial institution is claiming in the bankruptcy, it is subject to 75(2) of the Bankruptcy Act which provides that it can only claim mortgage interest up to the date of adjudication. The consequences are that the home is lost and the shortfall after the dividend, if any, is written off. The spouse is still jointly and severally liable for the full mortgage unless she goes bankrupt. In the circumstances, the official assignee's decision is whether to allow rental payments for the family. Of course I will, but in accordance with reasonable living expenses under the ISI guidelines.

The next paragraph of my submission deals with the rare situation where, instead of realising the security, the institution values the security and claims for the shortfall in bankruptcy as an unsecured creditor. That is very rare. It is much preferred to opt to allow the mortgage to continue to be paid on acceptable terms. That avoids crystalising the security, which continues to appreciate providing value should the person cease being able to pay.

In April 2014, having seen questions raised at previous sittings of the committee, I sought to provide detail to members and an accurate picture of what happens when people go into bankruptcy. We went back and interviewed all bankrupts going back to 2011 and the findings are set out. We split them into two periods. In 2014, we have had 82 bankruptcies. Many people are simply attending for interview now and we are obtaining their profiles. The consequences for them of going into bankruptcy are only hitting now. It is more beneficial for the committee to see the historical picture split in two. The real numbers have come in since the change in the Bankruptcy Act on 3 December 2013. Of the 73 bankruptcies the statistics showed on Monday - it is 82 now - 40 are still in the family home and 33 are renting, of whom 14 voluntarily surrendered the properties. In the period 2011 to 2013, of the 121 bankruptcies, 66 are still in their homes and there are issues in relation to potential proceedings to be brought by me and family law proceedings. The balance can be read from the table itself. I pass back to Mr. Lorcan O'Connor.