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Bankruptcy

What is Bankruptcy?

Bankruptcy is a way of dealing with debts that you cannot pay. Bankruptcy proceedings free you from high levels of debt, however any assets that you have may be sold and the proceeds shared amongst your creditors. Bankruptcy normally lasts for twelve months, after which you can make a fresh start.

Bankruptcy must not be taken lightly

Bankruptcy should not be considered if you have assets of any reasonable value and you own your own home, even if there is little or no equity, as a trustee can take a charge against your property and utilize future capital gain in your home.

Contrary to what might be said about the new Enterprise Act, which states that certain classifications of bankrupts could be discharged in twelve months, this is not always the case and it should be remembered that the stigma of bankruptcy still exists and will have an effect on you financially for a long period after discharge. Therefore, even after discharge, it can be difficult to obtain a mortgage or credit for a number of years.

What are the effects of bankruptcy?

Initially you will have to report to the Official Receiver and provide him with details of your financial affairs.

The Official Receiver will effectively own all of your assets and look to realise their value for the benefit of the creditors.

Once the bankruptcy order has been made it is advertised in the London Gazette and the local press where you live.

Notification is made to everyone financially connected. Your bank, building Society, creditors, landlords and anyone else that you owe money to will be informed immediately.

Bankrupts cannot run a business. Any business you own will be closed immediately unless special permission to carry on trading is granted by the Official Receiver or the trustee. Normally this is only a temporary arrangement to, for instance, finish outstanding contracts to enable payments to be collected.

All accounts will be closed. Bank accounts will either be frozen to hold funds or closed if not in use. Credit cards and borrowing facilities will also be revoked immediately. Anything being purchased on HP will be returned to the finance company for them to dispose of.

You are unable to obtain credit exceeding £500 without disclosing your bankruptcy.

Future assets will be lost. Any asset that may have been acquired during the term of the bankruptcy, such as inheritances, insurance payouts or maturities or equity in property will vest in the trustee for the benefit of the creditors.

The bankruptcy order is registered with credit reference agencies for at least six years.

Your employment may be affected depending upon what job you do.

You cannot be a company director or hold public office. It is worth remembering that if you are a shareholder of a limited company the trustee may feel that there is a value to those shares if the company is profitable and that this could have a direct effect on the company.

Previous bankrupts should be very careful about being made bankrupt again as the minimum period of bankruptcy is 5 years and could continue for up to 15 years before being discharged.

Popular misconceptions over bankruptcy

They will not take my house if it is in negative equity or has little or no equity. The Trustee will place a charge against the property preventing its sale or re-mortgage and will wait, often long after you have been discharged from bankruptcy, to utilize equity gained by an increase in house valuations.

They won't take my home, I have a wife and young family. The trustee can, and will. Your partner will be given the chance to 'buy out' the bankrupt, or, if the property is jointly owned, buy out the bankrupt's share. This can often be difficult if the partner does not work or only has a low income. The trustee in bankruptcy has the power to enforce the sale of the property after a period of 12 months of the bankruptcy order being made. This time period is designed to give other parties to the property time to make alternative arrangements.

I put my home in my partner's name. Your partner must be able to prove that they paid full market value for the property and that they have made the mortgage payments since they bought the property. Shared mortgage commitment demonstrates that the bankrupt still has an interest, and therefore a financial stake, in the property. The official receiver also has the power to reverse any sale that may have been made at less than market value up to 6 years after the event.

BANKRUPTCY IS SERIOUS… BUT NOT THE END OF THE WORLD

Anderson Parker specialise in assisting with bankruptcy petitions and orders. It is a very daunting experience if you do not understand the procedure, however, it is possible to defend a bankruptcy petition and, in some circumstances, even reverse or annul the bankruptcy once the order has been made.

If you are subject to a bankruptcy petition and you need help we are happy to give you some initial advice which is free and with no obligation. You can call us on our free phone number or complete the Urgent Call Back form and we will contact you.

Call now 0845 1300 434

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