Bankruptcy

Bankruptcy Advice

What is Bankruptcy?

Bankruptcy is a formal insolvency route for individuals with serious debts that they cannot pay. Bankruptcy is often the last resort and is usually applied when no meaningful alternative can be offered to creditors.

You may petition for your own bankruptcy or a bankruptcy order may be applied for by one of your creditors if you cannot pay what is owed to them. Whilst the Enterprise Act 2002 now allows some bankruptcies to be discharged after one year this is not expected to be the norm and any proof of reckless spending may result in a bankruptcy period of between 2 and 15 years.

Bankruptcy Advice - Disadvantages

Bankruptcy is personal insolvency’s “nuclear option”. That’s not to say it is not the right choice for many – it often is. But, life won’t be the same after becoming bankrupt – not least when it comes to rebuilding your credit rating in years to come:

• All your assets, apart from those required for a basic standard of living, will be sold. This may include your house.
  
• You will not be allowed to obtain more than £500 credit unless you first disclose that you are bankrupt
  
• Any income you have in excess of that needed for your basic needs will have to be paid to your creditors.
  
• Your job may be at risk: certain trades and professions will not allow you to work when bankrupt.
  
• Your credit rating will be affected (probably for some time after your bankruptcy ceases) and there may be other restrictions, such as having your bank and credit card accounts closed.
  
• Your bankruptcy will be advertised in newspapers.

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Bankruptcy Advice - Advantages?

Bankruptcy Advice

Go bankrupt and almost all you have becomes available to your Trustee to pay off what you owe. Yet, for some, bankruptcy may be the best (if not the only) option:

• Once the bankruptcy period has come to an end, all debts are written off. Depending on your circumstances you may be debt free in 1 year
  
• If you live in rented accommodation and up to date with your rent you will be able to continue paying the rent. You have little to loose and ALL your debts will be written off at the end of the bankruptcy period.

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Bankruptcy Advice - Bankruptcy Order

Bankruptcy Advice

You can apply to annul (cancel) a bankruptcy order in certain circumstances. An annulment is a procedure dealt that can only be dealt with by the court and can be made at any time the court sees fit.

An annulment may be made if:
a) It can be proved that the bankruptcy order should not have been made in the first place.

b) Your creditors agree to the terms of an Individual Voluntary Arrangement whereby you pay back some or all of your debts over an agreed period of time.

c) The court is satisfied that all of your bankruptcy debts, which must include all fees and expenses incurred during the bankruptcy proceedings, are paid in full, or are guaranteed to be paid.

If a bankruptcy order is successfully annulled you will return to your pre-bankruptcy position. However, any disposal of assets that has been dealt with by the Official Receiver or trustee will still be valid and will not be reversed. Any other assets that had, until this point, been included as an asset of your bankruptcy, will be returned.
Remember that any debts that you were liable for prior to the bankruptcy order being made will still stand if they were not dealt with during the bankruptcy period. If you do not pay these debts as they fall due, your creditors may still take proceedings against you that may result in a further bankruptcy order being made.

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Bankruptcy Advice - Restrictions

Bankruptcy Advice

Bankruptcy is something that should not be taken lightly. Whilst bankruptcy may be appropriate in some circumstances it must be remembered that there are significant consequences and restrictions.

The duties of a bankrupt
While you are bankrupt you must co-operate fully with the Official Receiver. It is essential that you are completely honest and open with him about your assets and liabilities at the date of the bankruptcy order. If your financial circumstances change at any time before your bankruptcy you must advise the Official Receiver immediately, for example a change in employment or a windfall.

You must:

• provide details of all your assets and hand them over to the Official Receiver if asked to. This may include your property but only your share of it.
  
• hand over all documents, books and records relating to your financial affairs.
  
• attend a meeting with the Official Receiver or his staff if requested to do so.
  
• attend a meeting of creditors if one is called.
  
• give any other information that may be reasonably requested.

Remember - it is a criminal offence to mislead or attempt to conceal information from the Official Receiver.

The restrictions on a bankrupt
The following are criminal offences for an undischarged bankrupt:

• obtaining credit of £500 or more, either alone or jointly with another person, without disclosing your bankruptcy.
  
• carrying on business in a different name from that in which you were made bankrupt without telling all those involved the name in which you were made bankrupt.
  
• forming or managing a limited company or acting as a company director without the court's permission.
  
• A bankrupt may not hold certain public offices. For example, they may not act as a magistrate or an MP.

In addition:

• Some professionals are prevented from practising if made bankrupt, including a Chartered Accountant or a solicitor.
  
• Credit ratings may be affected for a number of years to come.
  
• Bankrupts cannot be a trustee of a charity or a pension fund.
  
• When opening a new bank account the debtor must advise that they are bankrupt and conditions may be imposed.

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Bankruptcy Advice - Going bankrupt?

Bankruptcy Advice

A court makes a bankruptcy order only after a bankruptcy petition has been presented either by:

• the debtor themselves (debtor's petition); or
  
• by one or more unsecured creditors who are owed at least £750 (creditor's petition).
  
• a supervisor of an individual voluntary arrangement may also present a petition if they believe they have grounds.

A bankruptcy order can still be made, even if the debtor refuses to acknowledge the proceedings or refuses to agree to them.

Once the bankruptcy order has been made the process involved is the same whoever issued the petition.

Issuing a petition for your own bankruptcy?

To petition for your own bankruptcy you must be able to show that you are unable to pay your debts.
However before making any decision about making yourself bankrupt it is essential that you seek independent advice. For this you may approach an insolvency practitioner or one of many free debt advice providers such as your local Citizens Advice Bureau. If you have carefully considered your circumstances and still wish to proceed, you should contact your local County Court (or the High Court if you live in London).

The staff at your local County Court are happy to help people complete the paperwork needed to present a bankruptcy petition. You will be required to make a statement of your income and your average monthly expenditure so you should ensure that you have prepared this in advance of attending the court.

The court will also require information about all the people to whom you owe money (your creditors). You should include their full name or trading name, their address, the amount you believe you owe or the amount they have demanded from you if this is different, and any reference numbers that may be relevant.

You will be charged £140 in court fees (unless there are exceptional circumstances) and a further £310 for the administration of your bankruptcy.

The court may hear your petition may on the same day that you present it, or it may arrange a later date when it will be considered.

How a bankruptcy petition may be made against you

If one or more of your creditors are owed £750 or more they may issue a bankruptcy petition against you.

Usually a formal demand for payment will be made by your creditors prior to issuing a bankruptcy petition. This may take the form of a final written demand or a statutory demand. If a statutory demand is made you must respond within 18 days. Once 21 days has elapsed from the date of the statutory demand being issued the creditor may issue a petition without additional warning.

What happens once a bankruptcy order is made?

Usually the Official Receiver (see glossary) will deal with your affairs once a bankruptcy order has been made against you.

Within 21 days, you must provide the Official Receiver with all information they require regarding your financial affairs - including a list of all of your assets and the amount and details of all your debts.
Usually, but not always, you will be required to attend the office of the Official Receiver soon after the bankruptcy order has been made.

The Official Receiver is a civil servant who is required to investigate the financial affairs of all individuals who are made bankrupt.

A licensed insolvency practitioner may be appointed trustee in place of the Official Receiver. Like the Official Receiver, they are required to deal with the disposal of your assets and the making of payments to creditors.

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Bankruptcy Advice - What about my home?

Bankruptcy Advice

When you are made bankrupt, all assets that belong to you come under the control of the Trustee whose duty is to make as much money as they can from these to start to pay back your creditors. These assets include your home.

If you own your home, solely or jointly, your interest in the property will form part of your estate, which will be dealt with by your Trustee. If no alternative solution can be found then your property may be sold to help pay off your debts.

To avoid this you may be in a position for your spouse, partner, relative or friend to buy out your interest in the property. They should make an offer to the Trustee who will consider whether it is fair and reasonable before making a decision.

If you have children or other dependants living in your home it is often possible for the sale to be postponed until the end of the first year of bankruptcy to allow you to find alternative accommodation.

If the Trustee is unable to sell the property immediately they will usually obtain a charge, which protects their interest. You cannot then sell the property without the Trustee being made aware. If you do so they will claim the interest that is covered by the charge which includes any increase in the value of the property.

If you rent your home the Trustee will have no interest in the property and therefore he cannot sell this. The Trustee will usually tell your landlord that you are bankrupt however and if you do not comply with the terms of your tenancy then the landlord may take action against you which may result in your losing your right to remain there.

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Bankruptcy Advice - other assets

Bankruptcy Advice

When you are made bankrupt any assets that you own come under the control of the Trustee, who is responsible for making as much money as they can from these to start to pay back your creditors.

Don’t panic: You are entitled to keep household items such as clothing, appliances, furniture or those items that you genuinely require in your employment or business.

If you have items in your home which are expensive, such as an antique dining table, the Trustee may seek to sell this and make available a small amount of funds for you to buy an alternative which would serve the same purpose.

Indeed, if you drive an expensive vehicle, whether in the course of your business or personally, the Trustee is likely to sell this and replace it with a more basic model.

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Bankruptcy Advice - My pension?

Bankruptcy Advice

You cannot lose your State pension. But, what will happen to any other pensions you have if you are made bankrupt will depend on a number of things.

• Whether you are a member of an occupational pension scheme or whether you have a personal pension.
  
• Any scheme rules about what happens to the pension in the event of bankruptcy
  
• The date at which your pension became or would become payable to you.

Whatever your situation, you must provide the Official Receiver with all the information that relates to your pension to allow them to consider whether they have an interest in this or not.

You should seek professional independent debt advice about the impact of bankruptcy on any pension that you or your spouse has an interest in.

Further information can be found in the leaflet “What will happen to my pension?” which is available from your nearest Official Receiver’s office or online at:
www.insolvency.gov.uk

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Links to related ClearDebt articles:

Bankruptcy Advice - Disadvantages
Bankruptcy Advice - Advantages?
Bankruptcy Advice - Bankruptcy Order
Bankruptcy Advice - Going bankrupt?
Bankruptcy Advice - My pension?
Bankruptcy Advice - other assets
Bankruptcy Advice - Restrictions
Bankruptcy Advice - What about my home?
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