Call 0207 504 1300 now if you have received a Bankruptcy Petition
Benefits of Bankruptcy
There used to be a stigma associated with Bankruptcy. But the Enterprise Act 2002 introduced a rescue culture to British business that softened Bankruptcy regulations, and encouraged entrepreneurialism.
Prior to the introduction of the Enterprise Act, discharges took 3 years and remained on file for 11 years. Now, Bankrupts are discharged after 12 months and the process is removed from your credit report after 6 years.
Bankruptcy is a viable option in many instances, especially if you get to keep your home and income.
The procedure can affect your credit rating. But very little changes unless you have assets or surplus income, and life will resume as usual after you are discharged.
How to avoid being made Bankrupt
A company director can avoid a Creditors' Bankruptcy Petition simply by disputing the debt. An individual can circumvent a Bankruptcy Petition by proposing to enter an Individual Voluntary Arrangement.
What is a Trustee?
In Bankruptcy, the function of a trustee (insolvency practitioner) is comparable to that of an administrator or liquidator in the insolvency of a limited company. Irrespective of the procedure, the main task of the insolvency practitioner (IP) is to realise assets to pay creditors. Aside from the tools of your trade, absolutely everything is up for grabs.
Debtor's Bankruptcy Petition
If you cannot pay your debts, you may apply to a court to be declared Bankrupt. You must provide a Statement of Affairs, which details the debts and explains that you have no means to pay. The Bankruptcy application costs £680. The application and a list of your assets and liabilities should be sent to an adjudicator at the government's Insolvency Service. The adjudicator will assess the information and decide if you should be made Bankrupt. Although creditors may object, they rarely do. You'll still have to pay court fines, student loans and child maintenance. But most of your debts will die if you have no surplus income after you're discharged, and creditors won't be able to chase you.
Keeping Your Home
Arguably the biggest stigma associated with Bankruptcy is the fear of losing the family home, but this can be avoided in most cases. Even if a trustee really wants to take the property, the courts won’t allow this during the 1st year. However, after 12 months, creditors' interests prevail, so the trustee can make steps towards seizing and selling your home if there's significant equity in the property. But they must 1st instruct lawyers to draft an order and make an application to a court. Litigation costs on both sides will escalate if the Bankrupt resists and contests. Subsequently, the trustee will be left with a sizeable legal bill, even if they do eventually get the property.
Properties Jointly Owned by a Couple or 2 Siblings
If 1 owner becomes Bankrupt, but the couple want to keep the house; the other party must buy back the 50% share now controlled by the trustee. Even if they refuse to buy the share, the trustee can force the sale of the property after 12 months. If a Bankrupt really wants to keep their home and there's significant equity in the property; they can arrange for a 3rd-party payment to the trustee for a corresponding amount.
For example: if a trustee who wants your home says: “I think there’s £50,000 equity in the property.” Your response should be to get the house valued whereby your beneficial share is worth £30,000. Offer the trustee a cash sum of £24,000 (payable in 12 monthly installments of £2,000) to disclaim their interest in the property.
Official Receiver Examinations
After you're declared Bankrupt you will be summoned for an interview with the Official Receiver. They are court-appointed officials from the Insolvency Service. They'll ask you to fill out a questionnaire with information about your:
- Bank account(s)
- Life insurance.
The official receiver will appoint an insolvency practitioner to act as trustee if you have valuable assets. The insolvency practitioner will sell your assets to pay the creditors you owe.
IPOs and IPAs
If your trustee believes you have surplus revenue, they can ask the court to make you pay up to 36 monthly payments into the Bankruptcy Estate via an Income Payments Order (IPO). Alternatively, you can make these payments voluntarily through an Income Payment Agreement (IPA). The fee for each is approximately £150, which will be taken from your 1st payment.
The trustee may cancel and set aside any antecedent transactions (dealings that were harmful to the interest of creditors) that took place in the months prior to the Bankruptcy.
Bankruptcy may be a viable option, especially if you get to keep your home and all of your income. I&L will advise and support you through the process whether you’re being pursued by creditors or declaring yourself Bankrupt. Call 020 7504 1300 now for free and confidential advice…