Bankruptcy is a way of dealing with debts that you cannot repay.
Anyone can go Bankrupt, including individual members of a Partnership.
An individual (“the Debtor”) can make an application to Court to apply for their own Bankruptcy if they are insolvent and unable to pay their debts as and when they fall due. In addition, any creditor who is owed £5,000 or more, may present a petition to Court for you to be made Bankrupt, again if you have failed to pay that debt when it fell due.
From a Debtor’s perspective, the main aim of Bankruptcy is to relieve you from the pressure being applied by creditors (people you owe money to) who you have no prospect of paying, to enable you to make a fresh start. Whilst Bankruptcy does write off most forms of debt, there are exceptions that you may need to consider dependent upon your personal circumstances.
In Bankruptcy the expectation is that all the Debtor’s available assets (such as property and investments) are realised, and to the extent that funds allow, distributed fairly amongst your creditors.
Whilst there is a perceived stigma associated with Bankruptcy, it does allow an individual to relieve themselves from the financial and mental burdens associated with debt. However, in the event of any form of wrongdoing by the Debtor, it does also carry with it serious implications and should not be taken lightly. Our view is that if you do find yourself in financial difficulty, we strongly advise that you contact one of our specialists, before making an application to Court to declare yourself Bankrupt.
In the event that you are made Bankrupt, there are a series of restrictions that will apply to you including:
- Informing people that you are Bankrupt if you operate a business under a different name;
- Informing any lender that you are Bankrupt if you are borrowing more than £500;
- You must seek permission from Court before becoming Director of a Company or being involved in the management or promotion of a Company.
The early stages of a Bankruptcy are normally handled by an Official Receiver, who works for the Insolvency Service. They will also be known as your Trustee, unless an Insolvency Practitioner is appointed to take over that role, which will usually occur where you have assets of value that need to be realised for the benefit of your creditors.
You must give the Official Receiver full information on your finances, together with a full list of your assets and creditor liabilities. Furthermore you will be required to tell your Trustee about any rise in income during your Bankruptcy period, and may be required to attend Court to explain your affairs in further detail if asked to do so.
With the exception of any reasonable domestic items, and items needed for your job, the Trustee will sell any assets, and tell the creditors how any money realised will be shared / distributed.
If you own your home, it can be sold if it is the only way to pay your creditors. If you own the Property with someone else, your share of the Property, after any secured debts (e.g. a mortgage) have been paid, transfers to your Trustee. This is known as the ‘beneficial interest’.
It may be possible for you to sell the Property, however the Trustee will receive your share of the money from the sale. The Trustee can’t usually sell the Property, without your agreement, for a year from the date of the Bankruptcy Order, if you have a partner or children living with you. You can stop a sale taking place later, if a family member or friend buys the beneficial interest in your home from the Trustee.
There’s a 3-year time limit for selling the family home from the date of the Bankruptcy Order. If your beneficial interest is less than £1,000 at the end of this period no action will be taken, and the interest will return to you. If your beneficial interest is more than £1,000, the Trustee can sell the Property or apply for a ‘charging order’ as an alternative to a sale.
Notwithstanding the Trustee’s beneficial interest, if you fall behind with your mortgage payments, your lender may also sell your home as mortgagee in possession.
The Insolvency Act, which details the relevant legislation in relation to Bankruptcy, is extremely detailed and also covers other assets such as your bank account(s), pensions, motor vehicles and your income (whether employed or self-employed).
Should you be concerned about, or considering, Bankruptcy as an option, you should contact one of our specialists as soon as possible to make a free, no obligation, appointment to consider the options available to you.
Dean Nelson, Nicholas Lee, Andrew Stevens and Michael Roome are all licensed in the United Kingdom to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. They are bound by the insolvency code of ethics, which can be found here.
When acting as receivers, administrative receivers or administrators, they act as agents only, without personal liability, and when acting as administrators, the affairs, business and property of the company are being managed by them.