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Bankruptcy
What is bankruptcy?
Bankruptcy is a way of dealing with debts you cannot afford to pay. Bankruptcy proceedings are normally instigated either by you (the debtor) or the person you owe money to (the creditor) because of high levels of debt or where there is little chance that the person owing the money can or will repay the debt.
Bankruptcy normally lasts for 12 months, after which time your debts are wiped off and you have a fresh start. However, any assets that you have (such as your home or car) may be sold and the money distributed to your creditors.
Bankruptcy should never be taken lightly and should be considered very carefully if you have assets of any reasonable value and you own your own home. Even if there is little, or no equity in your property the Official Receiver or Trustee can register a caution or place a charge against your property to utilize future capital gain in your home.
Even though the new Enterprise Act has reduced the term of most bankruptcies to only 12 months this is not always the case and in more serious cases the duration could be 5 years or more. Also bankruptcy will have a longer lasting affect on your credit rating making it difficult to obtain credit of any description well after you have been discharged. Most credit applications ask if you have ever been made bankrupt, so the answer will always be ‘yes’.
Effects of Bankruptcy
Initially you will have to report to the Official Receiver (O.R.) and provide him with details of your financial affairs. The Official Receiver will effectively ‘own’ all of your assets and will look to realise these for the benefit of the creditors if this is financially viable.
Once the Bankruptcy Order has been made it is advertised in the London Gazette and in another paper in your local area. Notification is made to everyone financially connected. Your bank, building society, landlord and anyone else that you owe money to will be informed immediately. Also any savings you have in the form of ISA’s or shares will be frozen too.
Bankrupts cannot run a business. Any business you own will be closed immediately unless special treatment is granted by the Official Receiver or the Trustee, to carry on trading. These may be granted, for instance, to finish an outstanding contract to enable the payment for the work to be collected.
You are unable to obtain credit exceeding £500 without disclosing your bankruptcy.
Future assets will be lost. Any asset that may have been acquired during the term of the bankruptcy, such as inheritance, insurance payouts or maturities or equity in property will vest in the trustee and may be sold for the benefit of the creditors.
The bankruptcy order is registered with the credit reference agencies for at least 6 years.
Your employment may be affected depending upon what job you have.
You cannot be a company director or hold public office. It is worth remembering that if you are a shareholder of a limited company the trustee may feel that there is a value to those shares if the company is profitable and that this could have a direct effect on the company.
Previous bankrupts should be very careful about being made bankrupt again as the term of the bankruptcy automatically increases to 5 years and could continue up to 15 years before being discharged
Popular misconceptions over bankruptcy
‘They will not take my house if it is in negative equity or has little or no equity’
Maybe not, however, the trustee will place a charge or caution on the property preventing its sale or re-mortgage and will wait, often after your discharge from bankruptcy, to utilize equity gained by an increase in house valuations.
‘They won’t take my home, I have a wife and young family’
The trustee can, and will. In these circumstances your partner would be given the chance to ‘buy out’ your equity share. This can often be difficult if your partner does not work or only has a low income. The trustee in bankruptcy has the power to enforce the sale of the property after 12 months of the bankruptcy order being made. This time period is designed to give other interested parties of the property time to make alternative arrangements.
‘I put my home in my partners name.’
Your partner must be able to prove that they paid the full market value for the property and that they have made the mortgage payments since they purchased the property. Shared mortgage commitment demonstrates that the bankrupt still has an interest, and therefore a financial stake, in the property. The Official Receiver or Trustee also has the power to reverse a sale that may have been made at less than market value for a period of 6 years after the event.
Bankruptcy is serious…. But not the end of the world
If you do not understand the procedure detailed above, some one is threatening you with bankruptcy or you think you may have to petition for your own bankruptcy then Lifestyle Solution can offer free impartial advice.
Call us or complete our call back page and we will be happy to offer confidential and impartial advice
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