Bankruptcy

Bankruptcy

Personal debt and Bankruptcy

For individuals battling with intolerable personal debts, Bankruptcy can be the best to secure a debt-free future. It is a court-based procedure, where the debtor can either petition to be declared Bankrupt or have it forced on them by a creditor. A Trustee takes control of the assets and will sell them to pay off as much of the overall debt as possible. The Trustee has extensive powers of investigation so trying to hide assets can have disastrous consequences, including bans from running businesses in future or even in the most extreme cases a jail sentence.

What is the Bankruptcy process?

Bankruptcy can be a straightforward way to reset the debtor’s financial affairs and in most instances all debts and liabilities are written off when the Bankrupt is discharged after just 12 months or sometimes even sooner. Debtors can declare themselves Bankrupt by filing what is known as a Debtor’s Petition if they are prepared to admit that they cannot repay their debts. Alternatively a creditor can file a Bankruptcy Petition if they are owed more than £5,000. In either case, the Court will then make a Bankruptcy Order.

Bankrupt individuals are under a legal duty to assist the Trustee in all respects. A Trustee has up to three years from the date of the Bankruptcy Order to realise any interest in the property in which the bankrupt lives and sell any other assets. If the Bankrupt has any surplus income, they can be ordered to make payments out of their income to the Trustee for the benefit of the creditors for a period of three years.

Where the behaviour of the Bankrupt justifies it, the Official Receiver can obtain a Bankruptcy Restriction Order or a voluntary undertaking from them which can last between two and fifteen years. The Bankrupt will be subject to a variety of restrictions, most commonly they are not allowed to take part in the management of a business during that period.

The pros and cons of being declared Bankrupt

The advantages

• Creditors cannot take any further action against you unless the debts are secured on your home.
• Your unsecured debts will be cancelled.
• If you have sufficient income, a consensual Income Payment Agreement or an Income Payments Order will be put in place whereby you have to pay a monthly amount for a maximum period of 3 years. This should be an amount you can afford and will leave you with enough income to live on.
• Your creditors have no say in whether they agree to the making of a Bankruptcy Order.
• In most cases, you will receive your automatic discharge from bankruptcy at the end of 12 months or less.

The disadvantages

• Your credit rating will be adversely affected.
• Prior to your discharge from bankruptcy, you must tell any lender that  you are an undischarged bankrupt if you want to borrow more than £500. After your discharge you must continue to disclose your bankruptcy if asked the specific question.
• Your assets (with some limited exceptions) will be sold so that your creditors can be repaid some or all of what they are owed.
• It could affect your employment.
• If you are in business it may be difficult to continue your trade.
• Details of your bankruptcy will be held on the public Individual Insolvency Register and published in the London Gazette.
• You could have a Bankruptcy Restriction Order made against you for dishonesty or ‘unfit conduct’ if the circumstances merit this.

Debt advice

The faster you get help, the more options will be available to find a workable solution to relieve your stress and restore your life back to normal as quickly as possible.

You can find information on all options for resolving debts in England and Wales from the Insolvency Service. For debtors in Scotland, assistance in finding debt solutions can be accessed here.

Debt counselling services: Money Helper

Free and impartial debt counselling services are available from Money Helper.

Occasionally, where appropriate, we will refer clients to other agencies such as Citizens Advice Bureau or debt advisory charities. These other sources of advice may be paid by creditors, especially banks to help debtors deal with their financial difficulties. We do not receive any payment for these referrals.

Regulated personal insolvency advice for personal debt and Bankruptcy

For more information on personal debt and Bankruptcy, we offer an initial free consultation to review the situation and make recommendations on the best way forward. Whilst the initial consultation is free, we are a profit making organisation and as such, if we believe we can assist a fee will be payable.

If we think that Bankruptcy is the best route forward, our specialists can support the individual at every step of the way through the process. Contact our Head Office on +44 (0) 20 3326 6454 to arrange a no obligation and confidential call with one of our Partners.

For information on fees in relation to bankruptcy, click here.