If you cannot pay your debts one option is to file for bankruptcy. Your creditors can also make you bankrupt. If you go bankrupt then your assets can be sold to raise money to settle your debts. Outstanding debts are written off after a certain period of time, usually one year. The Enterprises Act of April 2004 changed many of the rules governing bankruptcy.
How do I file for bankruptcy?
In order to make yourself bankrupt you need to obtain and complete a form from your local county court offices. The petition can also be completed online then printed off to hand in to the court. Unless you are on a low income or certain benefits, court costs will have to be paid in cash when the form is submitted. Your local court may not accept your petition as only larger county courts deal with bankruptcy. Once submitted the judge will hear the case. If the order is made then you will have an appointment with the Official Receiver. They will go through a wide ranging questionnaire with you. This will include details of income, outgoings, assets, pension details, and so on.
How can a creditor make me bankrupt?
A creditor can make you bankrupt if you owe them £750 with no agreement on how the debt will be repaid. A creditor must first send you a Statutory Demand which offers you three options:
• to pay the debt
• to use property you own to secure the debt
• to agree with the creditors a method of payment (such as instalments)
The creditor can apply for a bankruptcy order 21 days after the Statutory Demand is served. In some cases you can apply to have the demand set aside. This may happen if there is a dispute over amounts owed.
What are assets?
Valuable items such as antiques, expensive electrical equipment and cars may well be sold. However basic items of clothing, bedding, furniture and household goods are not treated as assets. A car can be exempt if it is necessary for your job but you may have to buy a cheaper vehicle. Other items necessary for your work may also be exempt. This could include tools or books. Your home is treated differently to other assets. If you own property it can be sold to release any equity in it. This can be delayed for up to 1 year to give your partner and children time to find alternative accommodation. If you are the sole owner the whole value of your home is transferred to the Official Receiver. The Receiver will be entitled to your share of the equity on a jointly owned home. It may also be decided that you have a beneficial interest in the property even if you are not named on the mortgage. The joint owner, family or friends may be able to buy your share of the equity by making an offer to the Receiver. Otherwise the property is likely to be sold. Your home will not be sold immediately if there is little equity in it. However the Receiver retains their interest in the property for 3 years. If the value has increased it could still be sold or have a charge placed on it.
What about my pension?
The law affecting pensions was changed on 29 May 2000. If you have been made bankrupt since then your pension should be unaffected by bankruptcy. The exception is if you have made large payments into a pension so that your savings are not used to pay creditors. However if you were made bankrupt before 29 May 2000, then a personal pension can be taken as an asset.
Will my salary be affected?
If you have a high income with a surplus after paying ordinary expenses you may have to make payments from your salary. The Receiver will decide whether this is appropriate. Most bankruptcy orders end after one year. However you may have to sign an Income Payments Agreement to pay monthly instalments for 3 years. The Official Receiver must be informed of any change of circumstances and if you don’t pay the court may serve an Income Payments Order instead.
What are the effects of bankruptcy?
Bank and building society accounts will be closed. The bank or building society may allow you to open another account with permission from the Receiver. Gas, electricity and telephone companies will not allow you credit terms. A business that belongs to you, and is currently trading, is likely to be closed. It will be difficult to be self-employed if you need credit of more than £500. You should check your contract of employment as some jobs will be affected by bankruptcy. Some professional organisations prohibit bankruptcy so you would be struck off. The bankruptcy order will be registered with credit reference agencies for 6 years. When applying for loans after this you could still be asked if you have ever been bankrupt. Bankruptcy details can be published in local and trade papers. If you are bankrupt it is a criminal offence to obtain credit of more than £500 without telling the lender. You must also disclose the name used when you were made bankrupt if you use a new business name. You are not allowed to be the director of a company without permission or to act as an Insolvency Practitioner.
What is a Bankruptcy Restriction Order?
A Bankruptcy Restriction Order can be made against you if the Official Receiver believes your conduct has been unfit. Unfit conduct includes gambling, lack of proper accounts for your business, trading or taking out credit knowing you could not pay, trying to avoid including assets in the bankruptcy by giving them away, favouring some creditors, lack of co-operation with the Official Receiver, concealing property from the Official Receiver. The Bankruptcy Restriction Order will appear on a public register and could last from 2 up to 15 years. You cannot be an MP, a local councillor, director of a company or an insolvency practitioner. Also you must inform the lender of the order if you apply for credit of more than £500, and you cannot form a new company without permission. It is a criminal offence to break the order.
How can I be discharged from bankruptcy?
If you have been made bankrupt since 1 April 2004, you can be discharged automatically after 1 year. This applies however much you owe and could happen earlier if you co-operate with the Receiver. However this does not apply if you have been bankrupt before or the Receiver has suspended your automatic discharge. A Certificate of Discharge can be issued if proof of your discharge is required. This will cost £60. If the bankruptcy order should not have been made or if you have paid all the debts and expenses, you can apply to have the order annulled.
Sue Barnard writes and publishes a variety of money saving and personal finance resources. More of her work can be seen on the personal loans website www.finance-team.co.uk and the cheap loans. |
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