Bankruptcy Help at Home and Abroad

August 16, 2011

By: Brenna Working

Proposed changes to bankruptcy laws in Ireland highlight the different levels of bankruptcy help offered from one country to the next.

In 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act took effect in the United States, critics complained that the new law made bankruptcy protection needlessly expensive for Americans with serious debt.

But the BAPCPA restrictions pale in comparison to those currently in place in Ireland – which is perhaps why legislation set to take effect later this year on the Emerald Isle will make bankruptcy less punitive for filers.

Before: Bankruptcy that Lasted a Lifetime

In U.S. law, bankruptcy remains on a filer’s credit report for up to 10 years, during which time it may have a negative effect on a filer's credit rating. But after that period, evidence of bankruptcy vanishes.

In Ireland, though, this hasn't been the case. Under current law, bankruptcy filers can apply for a discharge of their bankruptcy case only after 12 years; in some cases, the court may not even grant that discharge. Those who don't apply for the discharge or who aren't granted it may have bankruptcy on their credit report for life.

But that law is scheduled to change later this year, according to the Irish Independent. Under the modified provisions, filers will have the opportunity to apply for a bankruptcy discharge after only five years and a bankruptcy case will be automatically discharged after 12.

According to sources, the change was proposed in part to address the realities facing bankruptcy filers in an economy that has suffered from the collapse of the real estate market and in part to prevent what's called "bankruptcy tourism" to the United Kingdom.

Bankruptcy tourism occurs when Irish debtors move to a part of the nearby UK (such as Northern Ireland, which is on the same island as the Republic of Ireland) and file for bankruptcy there. UK bankruptcy help is much more sweeping than that in Ireland: after only 12 months, bankruptcy filers can apply to have their debts discharged.

More Bankruptcy Help in the U.S.?

Since the passage of BAPCPA, there have been calls to modify bankruptcy laws to favor consumers more. The collapse of the housing market in particular has caused some lawmakers to call for a change to Chapter 13 bankruptcy provisions that would allow the court to modify the terms of mortgages in repayment plans.

As yet, though, no proposed changes have gained significant traction in Congress.