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Bankruptcy

Our advice would be that bankruptcy is usually the last resort. There are often more appropriate means, such as an individual voluntary arrangement.

Our advice would be that bankruptcy is usually the last resort. There are often more appropriate means, such as an individual voluntary arrangement.

Only private individuals can be made bankrupt. Bankruptcy does not apply to companies or partnerships, although individual members of a partnership can be made bankrupt. An individual is made bankrupt by a petition presented to the Court. The petitioner must satisfy the Court that the individual cannot pay their debts. If the Court is satisfied, it will make a bankruptcy order.

The purpose of the bankruptcy order is to appoint a responsible person as trustee, who has a duty to collect the bankrupt's assets and distribute them to their creditors in accordance with the law.

If you are considering this as an option please contact us.

However, it maybe useful for you to know the answers to some frequently asked questions regarding bankruptcy?

Who may petition for a debtor's bankruptcy?

Any creditor owed at least £750. Two or more creditors may join together to reach this threshold.

An individual may petition for their own bankruptcy.

A supervisor of an individual voluntary arrangement may petition if either the debtor fails to comply with their obligations under the arrangement or if the debtor has provided false or misleading information to gain acceptance of the arrangement.

Should I petition for my own bankruptcy or wait for a creditor to petition?

Petitioning for your own bankruptcy may possibly result in an order being made sooner than by waiting for a creditor to petition. The sooner your bankruptcy starts, the sooner it will be over. As soon as the bankruptcy order is made, your estate will vest in a Trustee and you will be protected from the unpleasantness of visits by bailiffs or any other action against your property by unsecured creditors.

The disadvantage is that you will have to pay the Court fee of up to £600 before the Court will hear your petition. It is ironic that many debtors who need to be made bankrupt do not have the money to pay the Court fees and have no alternative but to wait for a creditor to petition and bear the cost.

How long will it last?

An individual remains bankrupt until their discharge. Most bankrupts are automatically discharged one year after the date of the bankruptcy order or even less, perhaps as quickly as within eight months if there are no issues.

If the individual has previously been bankrupt in the last 15 years then discharge is not automatic. The bankrupt has to apply to Court for their discharge which they cannot do until 5 years after the date of the bankruptcy order.

Will I lose my home?

Many people assume that they will automatically lose their home if they are made bankrupt. This is not always the case.

If there is a mortgage on the property, the bankruptcy order does not affect the rights of the mortgagee. Should you fall into arrears with your mortgage, then the mortgagee can repossess the property in accordance with the terms of the mortgage deed.

Your home, or your share of it, automatically vests in your trustee on their appointment without any conveyance being necessary. The trustee is only interested in any equity that belongs to you, being made available to your creditors.

Your trustee has the power to apply to the Court for an order to evict you and then sell the property. If you have a spouse living there or children under the age of 18 years then an order for sale will not normally be granted until at least 12 months after the date of appointment of the trustee.
If your house has only a small amount of equity in it, then it may be possible for a friend or relative to buy out your share. An application for an order for sale by the Trustee is normally a last resort.

Will an income payments order be made and how much for?

At an early stage in the bankruptcy, your monthly income and outgoings will be reviewed. If you have any money left over after meeting your essential living requirements, then you may be asked you to commit to an Income Payment Agreement for the amount deemed affordable for you to pay into your bankruptcy. If agreement can not be reached then an application may be made to the Court for an income payments order. This normally runs for 36 months from the date the order is made, therefore it will still run after your discharge from bankruptcy. Most Courts make orders for around half of your disposable income after allowing for reasonable living expenses.

If you are considering an Individual Voluntary Arrangement as an alternative to Bankruptcy, in most cases the agreed contributions out of your income into the IVAs will be more onerous in that they usually last for 5 years and take a greater proportion of  disposable income after allowing a small safety margin for contingencies.

Should there be a change in your circumstances during the Bankruptcy, then it is possible for the income payments order to be varied or revoked.

Should you fail to comply with an income payments order, then an attachment of earnings order may be made so that your employer has to deduct it from your wages before paying you.

Will I lose my job?

For most people this is highly unlikely. There are a few specific occupations where people who are Bankrupt are automatically barred including: acting as a company director without leave of the Court, acting as a Member of Parliament or a local councilor and in certain cases, membership of financial, legal and accountancy regulatory bodies. It may be worth making enquires of any industry specific bodies where membership is required for your employment to find out their latest policy.

Will I lose my car?

In most cases no, if you own it without finance, particularly, if it is required for your work. If it is an expensive car, your trustee has the power to sell it, but they must replace it with another vehicle capable of doing the same job.

If your car is on a finance agreement then under the terms of most finance agreements, the finance company is entitled to terminate the agreement and take back the vehicle in the event of bankruptcy.

Will I lose my pension?

All pensions schemes that have been approved by HM Revenue and Customs remain outside a bankrupt's estate. This means they cannot be claimed by the trustee in bankruptcy. This follows the introduction of the Welfare Reform and Pensions Act 1999.


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