What is Bankruptcy?
- it is a common misunderstanding that
bankruptcy uk is only for companies and
businesses. It is not. Bankruptcy is the way that an individual person can deal
with personal debts, which they have no hope of repaying.
If you are declared bankrupt, you will no longer
have the responsibility of paying your creditors yourself and the court will
protect you from any further actions that your creditors threaten against you.
However, where you can afford to do so, you will still have to make
contributions towards paying your debts.
The Enterprise Act 2004 - there has
been a lot of publicity surrounding changes in the law regarding bankruptcy –
the Enterprise Act introduced in April 2004. The question is whether or not
bankruptcy is now an easier way of dealing with debt? Certainly, for some
individuals, the new rules may be of benefit. However, it is arguable that for
the majority of people, the law has not made bankruptcy any easier, and in some
aspects, it has become more onerous. It is clear that Bankruptcy remains a
serious matter and should still in many circumstances, be regarded as a
last resort after all other options for repaying debt have been exhausted.
In
April 2004, the Enterprise Act came into force. The impression given to many has
been that this change has made it easier to declare bankruptcy. However, the
reality for most people is that there has been little or no change. The two key
changes to the law are as follows:
Length of Time Bankruptcy Lasts - The new act now
states that a person shall be declared bankrupt for no more than 12 months
(2-3 years before the change) unless there are exceptional circumstances (for
example, the individual has been bankrupt in the past). This is potentially
good for people such as company directors or other professionals who can act
as such again after 12 months. However, for normal people, this change has
made very little difference. The effects of Bankruptcy (e.g. poor credit
rating, loss of assets and monthly payments to the court – see below) have not
changed.
-
Trustee’s Claim on Property -
If you declare yourself bankrupt and you are a home owner, then your title to
the property will be transferred to your Trustee in Bankruptcy. The Trustee
has a duty to release any equity you own from the property for the benefit of
your creditors. This can be achieved by a third party offering to buy out your
equity or through the sale of the property.
Even if you are discharged from your bankruptcy after 12 months, the title to
your property will remain with the Trustee in Bankruptcy for up to 3 years. The
new Act states that if the Trustee in Bankruptcy has not acted to release any
such equity within 3 years of you declaring bankruptcy, then they will loose the
right to do so. At this point the title will pass back automatically to you.
Arguably this has put increased pressure on the Trustee to act quickly to
release equity. If a third party is unable to make a sensible offer, it is
envisaged that more houses will be forcibly sold as a result of this change.
What Happens to my Property and Belongings?
-
Personal Belongings - you will normally be able to keep personal items
and household goods such as furniture and electrical goods as long as their
value is not greater than the cost of their reasonable replacement. However,
you will be expected to sell valuable assets such as antiques and expensive
vehicles.
-
Vehicles - if you require your vehicle in the course of your business
or in order to get to work, then it is likely that you will be able to keep
it. However, if your vehicle is valuable and the Court feels that it is
reasonable for you to sell it and buy a cheaper one (giving the proceeds to
the Court) then they will ask you to do this. If you have clearly no need for
your vehicle, then it is likely that the Court will ask you to sell it.
-
House - as a bankrupt, your title to any house you own or are paying a
mortgage on will be passed to the Court. As such, any equity that you have
personally in the property will no longer be yours. The Court will want to
realise such equity for the benefit of your creditors.
Title to the property remains with the Court for 3 years
from the date of your bankruptcy (even if you are discharged after 12 months).
If the Court has not acted to release equity within 3 years, then it will
loose the right to do so and title returns to you.
This means that it is highly likely that the
Court will act to release equity within 3 years. This can be done either by a
third party making an offer to the Court to buy out your equity, or the Court
will force the sale of the property to release the equity. I
Will I have To Make Any Payments To The Court?
- As a bankrupt person, you will be expected to make your best effort to repay
what you can to your creditors through the Court. The Court will assess your
ability to make monthly payments by considering your income and reasonable
monthly living expenditures. If you can afford to make monthly payments, the
Court will introduce an Income Payment Order. Normally the Court will request
that payments are deducted directly from your wages. Any Income Payments Order
will last for 3 years (even if you are discharged from your bankruptcy after 12
months) and will be regularly reviewed. As such, during the three year period,
if your circumstances change and you can afford to pay more, you will be made to
do so. After 3 years, you are released from further payments and any outstanding
unpaid debt is written off. Exceptions to this include fines, debts arising from
fraud and certain other crimes
How Long Will Bankruptcy Last? - with the introduction of the Enterprise
Act, unless you have been bankrupt before or there are other special
circumstances, your bankruptcy will normally last 12 months. You are then
discharged from your bankruptcy. Please note you will have to continue paying
any Income Payment Order for a further 24 months. In addition, title to your
property will remain with the Court for a further 24 months after you are
discharged.
Who Will Know About My Bankruptcy?
- bankruptcy is a
public matter. This means that once your declare yourself bankrupt, your name
will be presented in the local newspaper and also the London Gazette. No one
else will be informed. The Court will inform your employer only in very
exceptional circumstances.
How Will My Credit Rating Be Effected?
- as a bankrupt person, you are not allowed to borrow more than £250 without
first disclosing that you are bankrupt. Once you are discharged from your
bankruptcy, there is no reason under that law that you cannot borrow money
again.
How do I become bankrupt?
See page 2 >>>
