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.
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. |
