Bankruptcy
What is bankruptcy?
How do I become bankrupt?
What are the advantages of bankruptcy?
What are the disadvantages of bankruptcy?
How long will my bankruptcy last?
What happens when I am made bankrupt?
What debts are included in my bankruptcy?
What will happen to my home?
Can I have a bank account if I am bankrupt?
Call us now on 01636 642880 for free advice about your debts.
What is bankruptcy?
Bankruptcy is a way of dealing with the debts you cannot pay. It frees you from overwhelming debts so you can make a fresh start and makes sure that your assets are shared out fairly between your creditors.
Bankruptcy should not be entered into lightly however as you will have to give up any possessions of value and your interest in your home. If you are in business it will mean the closure of your business and the dismissal of your employees.
There are also various restrictions that are placed on you while you are bankrupt.
Top of Page
How do I become bankrupt?
You can make yourself bankrupt by petitioning yourself, or a creditor to whom you owe more than £750 can petition for your bankruptcy.
If you decide to make yourself bankrupt, you will need to fill in a bankruptcy petition form and a statement of affairs (a statement of all your assets and liabilities)
You will then need to make an appointment at your local county court to hear your bankruptcy petition.
You will have to pay two fees to the Court:
- The Court Fee of £150
- The deposit toward administering the cost of your bankruptcy of £345.
At the Court hearing a judge will decide whether or not to make the bankruptcy order. He can either:
- adjourn the hearing if he feels that he needs more information
- dismiss the petition if he feels that another solution would be more appropriate such as an administration order
- appoint an Insolvency Practitioner to investigate whether or not an Individual Voluntary Arrangement would be more appropriate
- make the bankruptcy order.
If the bankruptcy order is made you will be required to contact the Official Receiver who is a civil servant working for The Insolvency Service and an officer of the Court. You will need to give him details of all your assets, income and expenditure and all of your debts. You are under a duty to co-operate fully with the Official Receiver.
The Official Receiver will act as your Trustee in Bankruptcy (unless he appoints an Insolvency Practitioner to do this for him) whose job it is to manage your financial affairs for the period before and during your bankruptcy. The Official Receiver also has a duty to investigate your conduct leading up to your bankruptcy and report to the Court if he feels that you have been guilty of any offences in connection with your bankruptcy. Top of Page
What are the advantages of bankruptcy?
- Bankruptcy offers the opportunity to make a fresh start, with a clean slate. It is appropriate in circumstances where the debts you owe are overwhelming and there is little prospect that you will ever be able to clear them or make an offer to settle them.
- In some cases the period of bankruptcy could be less than12 months. Top of Page
What are the disadvantages of bankruptcy?
While you are an un-discharged bankrupt there will be:
- A restriction against you obtaining further credit.
- A restriction against you acting as a company director.
- A restriction against you trading under a different name without disclosure to third parties.
- There are professional prohibitions that can bar a bankrupt from trading as, say, a solicitor or accountant.
- Any significant assets you own, such as equity in your home, automatically vest in your Trustee and he will seek to realise these to help settle your debts.
- The bankruptcy order will be advertised in a local paper.
- Where the trustee believes you can afford it, he can compel you to make a monthly payment to the bankruptcy pot, out of your income.
- The bankrupt has legal obligations to provide information and to deliver up his assets to the trustee.
- Your credit rating will be affected.
- You may find it difficult to arrange a bank account. Top of Page
How long will my bankruptcy last?
A bankruptcy will last for one year.
However;
- If the Official Receiver is happy that you have co-operated with him and that he has nothing in your affairs to investigate, he can file a certificate in Court to say so, and your bankruptcy will end on that day.
- If you do not co-operate with the Official Receiver he can apply for an order for time to stop running, which has the effect of extending your bankruptcy.
- If the Official Receiver finds evidence of any wrong doing on your part such as giving away assets, paying a family member to whom you owe money to back ahead of your other creditors, hiding assets, or taking credit knowing that it can’t be paid back, he can impose a Bankruptcy Restrictions Order on you which will extend the effects of your bankruptcy for anything up to 15 years. Top of Page
What happens when I am made bankrupt?
Once you have been made bankrupt all of your worldwide assets will become the legal property of the Trustee (who will initially be the Official Receiver) who’s job it is to manage your financial affairs and realise your assets for the benefit of your creditors.
These include everything you own or have a right to such as:
- Savings and Endowment Policies
- Houses
- Works of Art,
- Antiques,
- Jewellery
- Businesses and other investments
Excluded are the tools of your trade, your motor vehicle if it is necessary for your employment (not excluded will be any other vehicles even if they are necessary for your partner etc to go to work) and household goods.
Note however that if any of these items are of excess value the Trustee can claim those goods provided that he gives you funds to purchase a reasonable replacement (a good example would be where you drive a brand new BMW or have a Chippendale dining table).
You will have to pay your surplus income into the bankruptcy for a period of three years.
In addition you will have to inform the Trustee of any change in circumstances, windfalls or inheritances which the Trustee will be able to claim for the bankruptcy (this only applies during the term of the bankruptcy)
The bankruptcy will be advertised in the local press.
Your credit file will show that you have been subject to a bankruptcy order for six years.
You cannot take credit for more than £500 with any one creditor without disclosing the fact that you are an undischarged bankrupt or subject to a bankruptcy restrictions order or undertaking. Credit includes deposits a sole trader may take for goods or services to be provided and HP Agreements.
You cannot trade in any name other than the name that in which you were made bankrupt without disclosing the name in which you were made bankrupt (e.g. if you currently trade as John Smith if he want to change your trading name to JS Builders you would have to show your name as John Smith t/a JS Builders)
If you are in a business partnership, the partnership will be dissolved.
You cannot act as an Insolvency Practitioner, Accountant, Lawyer, Estate Agent or Company Director (other professions/jobs may also restrict your continuing in employment – you should check your contract of employment). Top of Page
What debts are included in my bankruptcy?
The following debts are included in bankruptcy;
- Bank overdrafts
- Credit cards
- Loans
- Any shortfall from a secured debt (for example if your house or car has been repossessed)
- Outstanding VAT
- Outstanding debts to the Inland Revenue
- Gas, electricity and water arrears
- Rent arrears
- Council tax arrears
- Telephone arrears
- Loans from friends and family
You must not make any payments to these creditors.
The following debts are not to be included in your bankruptcy and you must continue to make payments to them.
- Mortgages
- Loans secured on your property
- Car hire purchase agreements
- CSA or child maintenance arrears
- Student loans
- On going utility bills
- On going council tax bills
- Magistrates court fines (e.g. speeding tickets) Top of Page
What will happen to my home?
Your home or your interest in your home will become the legal property of the Trustee. The Trustee will have a duty to realise that interest for the benefit of your bankruptcy creditors.
The Trustee will arrange for a valuation to be carried out on your house and will calculate how much equity you have in the property. He will then ask you if you know any person who can buy your interest in the property back from him or if you are able to raise the money to buy the interest back.
If you are unable to raise the money to buy back your interest in the property then the Trustee will require the property to be sold.
If the Trustee has not dealt with the property within 3 years of your being made bankrupt then the legal title to the property returns to you.
If your interest in the property is less than £1,000 the Trustee is unable to deal with the property.
If you rent your home then the Trustee will not be interested in it. However, you need to keep up with your rent payments or your landlord could take action against you. You should check your lease agreement to see if your bankruptcy gives your landlord the right to terminate the lease. Top of Page
Can I have a bank account if I am bankrupt?
The simple answer is yes. However:
- After you have been made bankrupt your account will be frozen, whilst the Trustee checks that there is no money in it above what you need to meet your essential expenses until your next pay day. You should ensure that you have sufficient cash to keep you going until the Trustee has checked this and authorised the bank to unfreeze the account.
- Some banks have a policy of closing accounts, even if they are in credit, of people who are bankrupt. Top of Page
|
