New figure from the Insolvency Service indicate record levels of insolvency for 2009.
Below are some of the most frequently asked questions concerning bankruptcy.
Is bankruptcy a better option than an IVA?
This depends on your situation. If you are a homeowner, own your own business or work in any of the prohibited professions - such as a lawyer, chartered accountant or justice of the peace - then it is probably better to opt for an IVA. If not - then filing for bankruptcy is almost certainly a better option for you, as you will have no assets to protect. For more information on prohibited professions, see below - "What are the restrictions that will apply to me?"
If I decide to go bankrupt, what assets will I be able to keep?
When you are declared bankrupt, all of your property at that time will be classed as your ‘estate'. This DOES NOT include certain exceptions which are vital to daily living, including:
Essentially, you will be allowed to keep the majority of your things, unless you are in possession of valuable items of jewellery, furniture, art, or luxury items - which will need to be surrendered.
What will happen to my home?
This depends on whether you are a home-owner. If you rent your accommodation, then the Official Receiver/Trustee will do nothing. Generally, unless you have an extremely ruthless landlord, you will be able to continue your term at the property - providing you pay your rent.
If you DO own your own home, the Official Receiver or Trustee will initially try to establish whether you have any equity in your property. Equity is the amount you would be left with if you sold your property and paid off what you owe to your mortgage lender - if any. If you have no equity then no further action will be taken against your property.
If there IS equity, then it is possible for a family member or spouse to ‘buy back' the interest from the Official Receiver/Trustee. We recommend dealing with the affairs surrounding your property swiftly - even without equity - as your property may increase in value during the 3 years the Official Receiver /Trustee is allocated to deal with your property.
The Official Receiver/Trustee has the right to apply for the sale of your property if no agreement is reached within a year. The property then must be sold within 3 years, otherwise ownership transfers back to the former bankrupt.
Note. For homeowners, an Individual Voluntary Arrangement - or IVA - is often a more practical insolvency solution. For more information click on the link What is an IVA?
What are the ‘restrictions' that will apply to me?
There are several restrictions that will apply to you until you are formally discharged from your bankruptcy. These include:
If you work in one of these sectors, it is advisable to opt for an IVA instead.
I run my own business - what will happen when I go bankrupt?
Your business will be classed as one of your assets,, and so will be included in your estate by the Official Receiver. Your staff - if any - will have to be dismissed, and the business will cease trading. If you do own your own business, it may be a better solution for you to enter an IVA .
I am director of a limited company - what will happen if I go bankrupt?
It is prohibited for a bankrupt to be involved in the formation or management of a company - and also in being a director. If you are a director, you have two options - either to resign, or consider an alternative insolvency solution - such as an IVA.
I am self-employed, but I don't have any staff. What will happen when I go bankrupt?
You will usually be put under certain restrictions, but you will generally be able to continue trading, as being able to earn a wage is a basic essential. Your tools of trade will be exempt from inclusion in your list of assets.
What will happen to my car?
Whether or not you are able to keep your vehicle when you go bankrupt is dependent on several things. Firstly, whether you own it or if it is on finance. Secondly, what the car will be used for - obviously a vehicle used in your business is a necessity. Lastly, if your car is regarded as being of excess value - if it is an expensive car worth more than around £2500. If it is, the Official Receiver/Trustee has the right to request its sale, leaving you to replace it with a cheaper model.
What about my income during the bankruptcy term - will I be able to keep it?
Your income is closely monitored by your Official Receiver or Trustee during your bankruptcy term (you are required to provide evidence of this periodically), and they will decide whether you have a significant surplus income, further to the "reasonable domestic needs of the bankrupt and his family". If they feel this is the case, you may be required to make income payments. They will initially propose an Income Payments Agreement, which if you do not adhere to, will become an Income Payment Order - taken directly from your employer.
What if my circumstances change during my bankruptcy term?
Again, as your income is monitored closely by your Official Receiver/Trustee, any significant changes will have to be assessed to decide whether the changes are considered assets - for example an inheritance or an insurance settlement, in which case they will probably need to be surrendered - or whether a significant pay rise will see any existing income payment order rise accordingly.
What if I don't want to co-operate with the demands of The Official Receiver?
It is strenuously advised to co-operate fully with your Official Receiver or Trustee. Failure to do so can have some significant consequences - including an extension of your bankruptcy term, which can be anywhere up to 10 years in severe cases. In addition, it is possible for the Official Receiver/Trustee to order your arrest and appearance in court. If you feel you will be unable to comply with their terms, perhaps an alternative insolvency solution should be considered. See Debt Management , Debt Consolidation or IVAs for more information. .
How long will my bankruptcy last?
The official period is 12 months, although in recent months the period has become far shorter - sometimes as little as 6 months. Expect anywhere between 6-12 months, unless you have not complied with your Official Receiver - in which case you may have to expect to wait considerably longer for your discharge.
Is it true that my name will be printed in the local press?
No! - Your name is printed on the national insolvency register, and in the LONDON gazette only, and it is so discreet it would be fair to say that the likelihood of someone reading it on that day that actually knew you are very slim indeed! Even if they did, many see it as a small price to pay in return for freedom from the burden of debt. Your name would only be printed in the local press if your case was deemed fraudulent, if you have withheld information from the Official Receiver, or if you have been bankrupt before - and that is still at the discretion of the Official Receiver.
Is it true I won't be allowed to have a bank account or a mobile phone contract once I'm bankrupt?
It is true that your credit account will have to be closed and in some cases certain current accounts - but 1Stop Money can help you arrange a new bank account tailored around your new status, as well as a mobile phone contract. For more information see Credit Accelerator, or Bankruptcy - The Myths.
I heard it is possible to get out of your bankruptcy early. How does this happen?
Bankruptcy annulment - or cancellation - happens for one of two reasons. The first is if you (or someone on your behalf) have paid all creditors in full in addition to the bankruptcy costs, either through money or assets valued to the correct amount. The second is if you are able to prove that the bankruptcy order should not have been made.
It is also possible to have your bankruptcy annulled by entering into an IVA, but you will then be bound to IVA repayments for anywhere up to 6 years.
I share a house with my husband. Can't I simply put it in his name before going bankrupt?
It is important to know that when examining a bankruptcy case, the Trustee has the authority to investigate and challenge any substantial assets given to family members within 5 years prior to bankruptcy. They can also overturn any previous transactions they may feel is not in keeping with insolvency legislation. So if you own your own home, an IVA may be a more advisable debt solution.
How long will my credit rating be affected for?
Your status as a former bankrupt will remain on your credit file for 6 years following your discharge from bankruptcy. This may seem a long time, but bear in mind that an IVA also stays on your file for 6 years - in addition to being subject to strict IVA repayments during that period.
Who deals with my bankruptcy?
When you file for bankruptcy you will be appointed an Official Receiver by the court dealing with your petition. The Official Receiver investigates the affairs and finances of the bankrupt, and if necessary appoints a Trustee to deal with the bankrupt's assets. The trustee will usually be an insolvency practitioner. For more detailed information, see Who is a Trustee , Who is the Official Receiver or The roles of the Insolvency Practitioner.
Will bankruptcy affect my job?
Only if you work in one of the prohibited professions outline above, in the FAQ ‘What are the ‘restrictions' that will apply to me', are a director of a company or you own a business employing others. You can continue as normal in any other professions. For more information see Is Bankruptcy Right For Me?
Is bankruptcy really the right choice for me?
This is an important consideration. If you are not employed in one of the prohibited professions previously outlined, and have no significant assets, then bankruptcy may indeed be the right choice for you. Otherwise an alternative solution such as a debt management plan or an IVA may be more suitable. Our Insolvency Practitioners can recommend the best, quickest and most affordable solution for you. For more information, see Is Bankruptcy Right For Me?
I've filed for my bankruptcy petition. What happens now?
Essentially, after you have provided all necessary information the Official Receiver then takes control of your bankruptcy - from liaising with your creditors to monitoring your income and dealing with the estate. It is important to comply fully with any demands the Official Receiver makes. For more information see The Bankruptcy Process.
For more information on filing for bankruptcy or any other debt solutions, please click on the relevant links below.
Will bankruptcy remove ALL of my debts?
Being discharged from bankruptcy
Trust Deeds (Scottish Residents Only)
Alternatively, to discuss bankruptcy or any other debt solutions, please call 1Stop Money 0800 012 4039 or fill in the online form and a 1Stop Money broker will contact you as soon as possible.
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