Frequently Asked Questions About Bankruptcy
What is insolvency?
The legal definition of insolvency is that an individual or corporate body either:
1. Cannot meet their debts as they fall due: or2. Has liabilities exceeding their assets.
If you think that you or your business is insolvent, you should take professional advice immediately. There are potentially severe penalties for continuing to trade or continue to take credit whilst insolvent. There are many ways in which you can deal with insolvency, including:
What is best for you depends on the circumstances and this website gives details on each of the above.
What will happen to my home if I go bankrupt or enter an IVA?
Rented Property
If you rent your property from a local council or housing association there will be no problem with you staying there so long as you keep up your rent payments.
If you rent your property from a private landlord you will need to check your tenancy agreement to see if there is an insolvency clause in it. If there isn't, your landlord has no grounds to evict you, provided you continue to pay your rent. If there is, you will usually still be able to stay. If you have always paid your rent in reasonable time and you talk to your landlord and explain that you will still be able to make your rent payments most landlords will allow you to stay.
Owned Property under bankruptcy
Your share of any equity in your property transfers to your Trustee, who has up to three years in which to realise the cash vale of the equity. It is nearly always best for you to settle all property issues as soon as you are bankrupt, since waiting will usually increase the value and you will have to pay more.
If you own your home and there is equity in the property we can advise you on what you need to do in order to keep your property. If the equity in your property is not split equally (perhaps because one partner has previously used a secured loan for their own purposes with no benefit to the other partner) we can put together a document detailing who has an interest and in what proportion. This can then be given to the Official Receiver with the supporting evidence so that the bankrupt's interest in the property can be released for a smaller amount of money.
If there is no equity in your property you can get valuations and a recent mortgage statement to show this and the bankrupt's interest in the property can be released for £1 plus legal costs of about £250.
Owned property under an IVA
The same basic principals apply as for bankruptcy, but in many cases, you will be asked to put into the IVA your share of the equity after you have been in the IVA for some time, usually four years. This can be very damaging for you, since the equity is likely to increase in that time and you will have to pay substantially more than if it is dealt with straight away. If your creditors insist on this, you should very seriously consider if bankruptcy is not the better option for you.
What will happen to my bank account(s) in bankruptcy?
All your bank accounts will be frozen on or shortly after the bankruptcy order is made. Any money in your account will go to the Official Receiver. You can open a new bank account after your bankruptcy hearing but will only be able to get a basic account. As most people get their wages or benefits paid directly into their account you will need to make sure the account has no money in it on the day you go bankrupt so that you can still pay your household bills. Any direct debits will need to be cancelled and household bills can be paid using the pay slips usually provided. If your wages or benefits are paid into your account you will need to see if your employer will pay them by another method or into someone else's account while you set up a new one.
What will happen to my vehicle in bankruptcy?
If you are working or looking for work and your vehicle is worth less than £2000, or if it is on finance and has less than £2000 equity, the Official Receiver will disclaim the vehicle.
If you are working or looking for work and your vehicle is worth more than £2000, or has more than £2000 equity, then the Official Receiver may wish to sell the vehicle but will only take the difference and give up to £2000 back to you to purchase a new vehicle. An alternative to this is to get a friend or family member to pay the difference to the Official Receiver.
If you are not working then the Official Receiver may sell the vehicle no matter what the value of it is. If you have a friend or family member who has the money available to purchase the vehicle they can purchase it either before the bankruptcy or from the Official Receiver directly.
If you own the vehicle jointly with someone else who is also declaring themselves bankrupt then your vehicle allowance is £2000 each, so you would be allowed a vehicle up to the value of £4000, however, the allowance only applies to people who are working or looking for work. If they are not declaring themselves bankrupt then they will be given the option of paying the difference to the Official Receiver first.
Will other people know I am bankrupt?
Your creditors will know, and a small advert will be placed in your local newspaper and the London Gazette to advertise your bankruptcy, this is mainly for the benefit of your creditors. Your landlord and the personnel department of your employer may also be contacted by the Official Receiver if he wishes to verify your rent or wages.
Is My Job Safe?
There are only a few jobs that you cannot have as a bankrupt. These include being a Director of a Limited Company and certain jobs within the financial or public sector. If you are in doubt, ask your manager or read your contract of employment. Apart from this there is no reason why you should lose your job.
If you income exceeds what you need to live on, you may have to make a monthly payment to your Trustee for up to three years. In those circumstances, the Trustee might contact your employer during the term to confirm your current salary.
How long will my bankruptcy last?
Most people are automatically discharged from bankruptcy after a year, and often sooner. Bankruptcy can be extended if it is felt that you have not co-operated with your Trustee or if you have been bankrupt before. Your Trustee may require you to make regular cash contributions for up to three years if your income exceeds your allowable expenditure, and your assets remain under the control of your Trustee after your discharge for the same three year period.
Can I still Trade as a bankrupt?
If you are a sole trader you can continue to trade in bankruptcy. In order to do this, you would firstly need to write to both The Revenue & the VAT to inform them that you are going to go bankrupt so that they may issue you with a new PAYE code and VAT registration number. You would then need to temporarily cease trading for one day and fire and re-hire your staff. You would then be able to continue to trade but this must be under the same trading name. Similarly, if you are self employed you may continue to trade again you would need to inform the VAT if you are VAT registered in order to obtain a new VAT number. The restrictions on taking credit of more than £500 would apply until your discharge.
What would happen to my pension in bankruptcy?
In bankruptcy, the Official Receiver can make no claim of your pension. If it is a pension scheme through work, you can continue to make payments into the pension, although you might not be allowed to continue to do this with a private pension.
What debts can be included in bankruptcy?
Any unsecured debt can be included in bankruptcy, this includes credit cards, store cards and unsecured loans. Any secured loans cannot be included in bankruptcy, for example mortgages. Student loans and fines imposed by the Courts cannot be included in bankruptcy. Divorce settlements can be included but only insofar as the settlement relates to a lump sum payment. Arrears of maintenance cannot be included.
What happens on the day of the hearing?
On the day of the hearing you will be required to attend your local county court, you will be required to submit your bankruptcy forms and pay the court fee. After this you will see the judge who will ask you some straight forward questions before they can declare bankruptcy and send the bankruptcy order to be drawn up. Whilst the order is being made, you will have a brief phone conversation with the Official Receiver who will then arrange a meeting with you for a later date. We attend all such meetings and hearings with the client so that you will have assistance throughout.
What happens when you are interviewed by the Official Receiver?
More often than not, your interview with the Official Receiver takes place over the phone. In more complicated cases you may be require to attend at meeting at their offices. Again this is a meeting one of our representatives would attend with you. Questions will be asked about the circumstances of your case and the debt you have incurred. This is usually a very straight forward interview and you will not be asked a question to which you do not know the answer.
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