Dealing with bankruptcy
Thinking of going into bankruptcy and need advice? Most of us believe it will never happen; illness, loss of job, loss of home, folks can have many reasons and it does happen, we go bankrupt and struggle with going through it. For what ever reasons if your debts are continually building you must talk with those who are owed, if you know you cannot pay to clear your debt within lets say five years then its time to make appointments with the CAB or CCCs as both are free. On the other hand, if you are thinking about an IVA then do think very seriously as this can actually delay going bankrupt by five years, whereas in that time you could have been bankrupt and slowly getting life back on track again.
What does bankruptcy mean?
If you can no longer deal with and pay your debts then bankruptcy is a way forward. Any assets you have can be used to pay your creditors. Certain restrictions are put in place and you are subject to meet them before getting discharged from your debts, this is usually 12 months, and sometimes it can be sooner. After agreeing to these certain restrictions your financial health will be looked into, no trying to cheat here!
Go get advice and help
There are other ways to try deal with debt such as the Individual Voluntary Arrangement – IVA. Independent and free advice is available from various charities and agencies, these can also make sure you understand how bankruptcy can affect your home, work and credit rating, they will try and see if there are other ways you can sort your problems of debt.
How to apply for bankruptcy?
This is one of the main things that can confuse folks; in fact anyone can apply to the court to make them bankrupt, individuals, partnerships and sole traders. Companies and partnerships are different procedures though. Not all courts deal with bankruptcy cases so you would need to find out which one local to you does. By applying to the court you can make yourself bankrupt. If you owe creditors at least £750 they can also usually apply to the court. When the court issues a bankruptcy order against you then you are bankrupt.
Who manages your bankruptcy?
Any assets of value including the financial interest in your home gets handed over to a trustee when the court issues a bankruptcy order against you. This trustee will be an insolvency practitioner (an authorised debt specialist) or Official Receiver (an officer of the bankruptcy court). The Official Receiver manages your bankruptcy at first as it can take time to appoint the trustee. The trustee collects information on your financial situation and protects your assets for your creditors, the term ‘assets’ keeps getting mentioned, it does not matter even if it is negative assets, that is the term regardless. If you don’t have any significant assets the Official Receiver will act as trustee, whereas If you have significant assets the Official Receiver will ask the creditors to appoint an insolvency practitioner as trustee.
Your responsibilities and restrictions in bankruptcy
When you are made bankrupt you must agree to certain restrictions including: co-operating fully with your trustee and Official Receiver, handing over your credit and bank cards to the Official Receiver, and not making payments to your creditors – the non-payment rule, limited exceptions to this non-payment rule apply which mean you must continue to pay any debts not listed in your bankruptcy order, including things like court fines, child maintenance orders, and student loans.
How bankruptcy affects you
If being made bankrupt is not allowed in your employment contract it can affect your work, you can’t have a job in a bank, as a solicitor, trustee of a charity or a role regulated by the Financial Services Authority. Any spare income you have can be used to help pay your bankruptcy debts, any assets of value you will have to give up and may lose the financial interest in your home. It will affect your ability to get credit; credit reference agencies keep a record of your bankruptcy for six years. Your bank will freeze any accounts you hold and may not let you open new ones, get a basic account set up before going into bankruptcy.
Bankruptcy and public records
Your Official Receiver will advertise your bankruptcy in official records like the Individual Insolvency Register and the London Gazette; these records are used by credit reference agencies to update your credit file. The Individual Insolvency Register an online database of insolvencies in England and Wales and the London Gazette is a publication of legal notices. Your bank, mortgage and landlord, pension or insurance provider will be told of your bankruptcy.
Just how are your debts paid?
Once your creditors are told about your bankruptcy they need to make formal claims to your trustee for the money they are owed. They must not ask you for payment though in reality be prepared to get letters and phone calls in the weeks following your bankruptcy application. The trustee will manage the payments to your creditors through the sale or disposal of your assets. Your spare income can sometimes be used to help pay your debts; lasting upto three years this arrangement is known as either an Income Payments Agreement or Income Payments Order.
After being made bankrupt what happens?
You have to attend an interview and provide details about your debts, assets and financial situation after you are made bankrupt, for the benefit of your creditors this will help the Official Receiver protect your assets and decide if a trustee is needed to manage your bankruptcy. Investigations into your bankruptcy are carried out by the Official Receiver into the cause(s) of it. The report will also be sent to your creditors, the bankruptcy restrictions can be extended if there is evidence of dishonest, criminal, or silly behaviour.
How long does bankruptcy last?
12 months is the usual bankruptcy period and after this time you are discharged from your bankruptcy debts. If your creditors don’t object it can be earlier if the Official Receiver completes their work on your bankruptcy. If you break the bankruptcy restrictions or don’t co-operate your discharge can be delayed with the Official Receiver.
After your discharge, assets taken to pay your debts will not be returned to you, your income can be used for three years to help pay your bankruptcy debts, if you can afford it the bankruptcy restrictions can continue for up to 15 years, this is mainly if your bankruptcy was the result of careless, criminal, dishonest behaviour, and fraud. This extension is known as either a Bankruptcy Restrictions Undertaking or Bankruptcy Restrictions Order.
I do hope you have found this article informative and not frightening; my advice is to work out all your debts, out goings and income and be realistic, do not use consolidation loans. It can be very nervous but struggling with debt can make folks ill, it’s best to be nervous going through the bankruptcy process, which in real terms can help with your longer term health, as of 2011 it cost’s about £700 to apply for bankruptcy.