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Bankruptcy

There are far worse fates than bankruptcy - at least they don't execute bankrupts any more, or throw them into debtor's prisons. It isn't a pleasant experience either and the procedure is actually meant to be partly punitive in order to discourage too many people from treating insolvency lightly, but it can be far better than a life of constantly fighting off bailiffs and being harassed by creditors and many people feel a sense of relief and acceptance when at long last they are bankrupted either voluntarily or by a creditor's petition. The actual process is:

You can apply yourself to your local county court, hand over a fee of about 150 plus a deposit of about 310 to cover administration costs; or a creditor can apply, with or without your approval, if you owe more than 750. A statutary demand is issued by the court and if you don't/can't pay it within the stated time there is a bankruptcy hearing and provided that you still can't pay and several other legal factors apply a bankruptcy order is issued against you, usually for between one and three years although this can be extended if there is any evidence of criminal or reckless behaviour on your part.

You will then be ordered - not asked - to co-operate with the Official Receiver's office and the staff there will question you to find out exactly (a) how you got yourself into this predicament in the first place and (b) what assets you have got, and what realistic prospects you have of paying towards your debts out of the realisation of these assets and future income. The Official Receiver's staff have got very wide powers including the right to ask for your passport to be seized, your mail to be re-directed to their office, or a criminal prosecution for a lack of co-operation so they are not people to trifle with! The bankrupcy is advertised in the London Gazette and a local newspaper, and your bank account(s) are frozen. A creditor's meeting is held between yourself, the Official Receiver's representative and your creditors - in practice, the creditors rarely turn up unless yours is a VERY interesting case - and then a trustee is appointed who takes control of all your assets and raises as much money as possible from them in order to pay a dividend to your creditors.

Yes, I'm afraid your home would be up for grabs although if you have a  partner living with you, and more so if you have children, you should be allowed up to 12 months to find somewhere else to live. Do bear in mind though that if you have mortgage arrears your mortgage provider could still apply for repossession - their loan is secured on the property so the fact that you were bankrupt would not affect their claim against your house. Is your home in joint names? Your partner would probably be offered the chance to buy your half, and if you had negative equity your house could be left alone completely provided that you kept up with mortgage payments, although the trustee could still insist on it being sold and claim your share of any increase in value prior to your discharge. If you could show that your car was essential for you to make a living you may be allowed to keep it (although you could still be required to sell it and buy a cheaper one, handing over the balance to the trustee) but if it was subject to a hire purchase agreement the HP company would normally re-possess it anyhow under the terms of their agreement with you. If you have an income that exceeds the amount you need to live on, you would probably be required to make monthly contributions for up to three years.

Advantages of bankruptcy

  • You would eventually be freed from all unsecured debts including tax and VAT bills, trade debts, credit card debts etc but EXCLUDING maintenance payments,  student loans, rent arrears, sums you have been ordered to pay by a court for personal injury, court fines and debts incurred as a result of any fraudulent activities you were involved in.

  • You could be required to make payments to your trustee for up to three years, rather than five years in the case of an IVA.

  • All of your creditors would be bound by the bankruptcy order so it would be illegal for any of them to harass you for repayment.

Disadvantages

  • You would probably lose all your main assets including your home.

  • You would lose control over your financial affairs.

  • There could be severe penalties to face if you did not co-operate fully with the trustee.

  • The trustee could require you to make regular monthly repayments out of your income for three years.

  • You would be unable to have a bank account or obtain credit of over 250 without stating that you were an undischarged bankrupt until after your discharge.

  • Your present and future job prospects could be adversely affected.

  • If you are an immigrant your status could be affected. If you plan to emigrate you could face additional complications.

  • Some professions or public offices would be closed to you.

  • You could not act as a director of a limited company prior to discharge.

  • There is still a social stigma attached to bankrupcty and since it would be advertised in a local newspaper it is likely that at least some of your neighbours, friends and family would be made aware of it.

  • Your credit rating would be severely affected both during and after your bankruptcy and if you wanted to raise a mortgage in the future you would be obliged to inform any potential lender of the fact that you were a discharged bankrupt, which would probably make it very expensive or even impossible for you to buy a home in the future.

Conclusion

Bankruptcy is a life-changing experience with many adverse implications for both the present and future so it is a step you need to take professional advice on, and to think very carefully about. An IVA is often an alternative to bankruptcy.

Debt Management   IVAs   bankruptcy   Debt Consolidation

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