Bankruptcy

Creditors owed more than £750 are entitled to obtain a bankruptcy order against their debtor. Debtors can also apply to be made bankrupt though there are further consequences in this case. In either case, the Official Receiver (OR) will then contact the debtor to obtain details of their financial situation.

Bankruptcy will mean the seizing of the debtor's assets, for sale by the OR, in order to raise as much money as possible to pay creditors, with exemptions which include:

• Ordinary household contents
• A modest motor vehicle
• The benefit of a residential tenancy
• The bankrupt's necessary "tools of the trade"
• Money held in a pension fund. If the fund is large or if the debtor is likely to be able to benefit from the fund in the next few years, advice should be taken.

The debtor's house may be sold, generally if it has a value in excess of any mortgages on it, though a forced sale may be avoided by selling any share to a joint owner or relative. It is not encouraged to force a sale through the court within the first 12 months of a bankruptcy to ensure a reasonable time to make necessary arrangements. The trustee has three years from the date of the bankruptcy to sell the house or deal with the bankrupt's interest in it, or the property will revert to the bankrupt. If the value of the equity in the house is less than £1000, the trustee will not be allowed to sell the house. A bankrupt should therefore consider selling his or her interest to any joint owner from the date of the bankruptcy as soon as possible, to avoid any increase in equity (taking it above £1000), which could allow a forced sale or the trustee seeking the bankrupt's full interest in the property, even after discharge from bankruptcy.

The court may order any surplus income above the needs of the bankrupt and his or her dependants to be payable to creditors for up to three years. Any windfall such as inheritance or gambling winnings will also be available to creditors.

Bankruptcy generally ends after one year, or sooner if the OR decides so. Following this, creditors can make no further claims against debtors, with some exceptions, for example; a lump sum order made in divorce proceedings and of course, any unpaid court fines. Any assets remaining unsold after termination of bankruptcy remain available to creditors and the trustee can still sell them.

An IVA can be sought even after a bankruptcy order has been made with a view to cancelling the order - if the IVA is accepted by creditors (more information on that HERE) - though there remains the risk of being made bankrupt again if the IVA is not honoured.

Other considerations:

• Professionally employed persons such a solicitors or accountants may have their practising certificate suspended.
• Bankrupts cannot act as a company director. (Seeking an IVA is more likely to be sought in these cases, though there may be fewer advantages, making bankruptcy a better option.)
• The bankruptcy will remain on record with credit agencies, the Land Registry and elsewhere.

Further Information on Bankruptcy can be found HERE

Taking professional advice is generally the best route to resolving debt problems. For us to asses which type of debt solution is most likely to help you out, click here.