Bankruptcy and Insolvency
Bankruptcy and Insolvency are seen as the
last resort. Perceived to be the only way to escape the ever-constant
demands for payment by debt collectors and credit companies alike. But bankruptcy is not
something to be rushed into. Certainly there are times when it can be
very useful, but there are other times when declaring bankruptcy would be
a monumental mistake.
The constraints which are put down upon you
once you are declared bankrupt make it only a viable option in the most
extreme of cases. It is more likely that an IVA will be the answer to
severe debt problems, since it provides much of the relief offered by
bankruptcy but without the severe constraints which bankruptcy and
insolvency imposes.
Who can become
bankrupt?
- A debtor who is insolvent can be
the subject of proceedings.
- A person can petition
their own bankruptcy.
- Creditors can, alone or jointly, apply for a debtor to be
made bankrupt where someone owes at least £750.00
- Only people normally resident in
England or Wales are subject to bankruptcy law.
We prepare relevant documents and arrange and
attend the court hearing speaking on your behalf to the District Judge. In
some cases attending the meeting with the Official Receivers.
The Effects Of Petitioning For
Bankruptcy.
The Risk to your Current
Assets
With bankruptcy your assets (property,
shares, anything of real value or even non-essential) can be sold to pay
your creditors. This makes bankruptcy a more sensible option where your
don't have much in the way of assets. It also means declaring bankruptcy
to cope with non-priority debts puts all the debtor's property at risk.. a
strategy that would seldom be advised.
Only the property owned by the debtor is directly at risk,
jointly-owned property (such as the family home) may be sold by the
trustee to realise the value of the debtor's share.
Additionally,
in bankruptcy the trustee can investigate any gifts or undervalued sales
made in the previous five years. If the gifts
or sale were made when the debtor was insolvent, the trustee can take steps to claim the value of the gift, or
undervalued part of the goods, from the recipient.
The Risk to Your Future Assets.
Where the debtor expects to
receive an inheritance or already has assets, consideration should be
given to any increase in value they may have whilst a bankruptcy order is
in place.
Arranging matters so as to avoid losing
out in such circumstances may be possible (such as amending a will) but
not by transferring assets as detailed above.
The Effect on Your Future Credit.
An undischarged bankrupt must
declare his status when seeking credit of more than £500, including hire
purchase and conditional sale agreements. It is an offence not to do
so.
Attempting to run a business can be hampered by
being an un discharged bankrupt, since credit will be nigh on impossible.
Undischarged bankrupts are also forbidden from being company directors,
unless they obtain special leave from the court.
Whilst utility companies cannot insist
on payment of pre-bankruptcy arrears as a condition of continuing supply,
they will usually require a security deposit and insist that a pre-payment
meter is fitted.
The Effect on Your Employment or
Business.
There are certain jobs you cannot have if you are an
undischarged bankrupt: Company Director (or concerned directly or
indirectly in the management of a company), MP, Councillor, Magistrate or
Estate Agent. A bankrupt usually can't be a school or college governor and
there are restrictions under charity law as to the role a bankrupt can
serve on management committees.
Security firms may not wish to employ an un
discharged bankrupt, particularly where money is involved. And the same
applies to the civil service. The rules for professions such as solicitors
and accountants make it virtually impossible for people who've been
bankrupted to work in these professions.
For a sole trader the effects can be
even greater. Whilst bankruptcy does not necessarily mean the business
will close, continuing to trade will be made more difficult:
If the business needs credit, the requirement for
the debtor to disclose that he is an un discharged bankrupt will make
suppliers unlikely to provide credit;
The bankruptcy order will be
advertised locally, which could damage the reputation of the business in
addition to that of its proprietor;
The
debtor cannot trade under a name other than the one under which he was
made bankrupt;
If items of business equipment are used by the
debtor's employees rather than the debtor personally, exemption from sale
cannot be claimed and the trustee may order them sold. This also includes
stock in trade which the trustee can sell on behalf of the bankrupt's
estate.
The Effect on Your Housing.
Homeowner or
tenant, bankruptcy can still cause problems. For homeowners it can limit
the ability to move to another property by reducing your ability to borrow
money. It does not, however, prevent you from exchanging local authority
or housing association property (providing local rules do not prohibit
this).
For tenants, the inability to borrow can make it
difficult to raise the deposit and/or the advance rental
payments.
The Effect on Your Reputation and
Stress.
The process of
declaring bankruptcy can be very stressful.
When declaring bankruptcy, it is possible
that there may be a public examination of financial affairs and conduct of
the debtor in open court. Though this only happens when there has been a
failure to co-operate with the Official Receiver or if it is requested by
50% of the creditors.
An advertisement will be published in a local paper
notifying of a person's bankruptcy and inviting claims from creditors. The
details can also be found online at a Public Register maintained by the Insolvency
Service.
For many there is still a stigma attached to
declaring bankruptcy and debtors can be made to feel like criminals,
though they most certainly are not.
Do You Have the
Resources?
Just like an IVA, there
are large expenses racked up when declaring bankruptcy with court and
insolvency service fees applied. |
