Answering Your Questions On Bankruptcy

What is bankruptcy?
Bankruptcy is a legal process that can be started if you can’t afford to pay all of your debts. It can also be started by someone else if you owe them more than £750. Bankruptcy allows you to reduce overwhelming debt and make a fresh start. A “Trustee in Bankruptcy”, (the person appointed to deal with your assets) sells your assets and distributes the proceeds to people you owe money to, to recoup as much debt as possible.

After your bankruptcy ends people you owe money to can’t make further claims against you for your debt. However, bankruptcy brings with it certain implications. For example, the fact you have been made bankrupt is advertised in the local press, your landlord is told and your employment may be at risk in some occupations and professions.

Do I lose everything?
When you make yourself bankrupt, all of your assets automatically become the possession of your Trustee in Bankruptcy. He/she has the authority to dispose of them without your consent. However, you are able to retain tools, books and vehicle that are considered essential for employment. You can also keep clothing, bedding, furniture and household equipment needed to satisfy the basic domestic needs of yourself and your family.
The assets which the Trustee in Bankruptcy can take are as follows:

• Any interest you may have in property, even if it’s held in joint names with a spouse or partner
• Any shares, bonds, endowments and savings policies
• Any funds held in bank or building society accounts
• High value assets such as motor vehicles and jewellery, although a suitable lower cost replacement can be provided instead
• Lump sums from private and occupational pensions if they mature during the bankruptcy. The Trustee may also be entitled to subsequent pension payments for up to three years.

You can also face having to pay part of your monthly or weekly wage, either with your consent or through a court order. This order is based on you contributing any surplus income and will last for a maximum of three years from the date of bankruptcy.
If you acquire any asset during the term of your bankruptcy you have to advise your Trustee, who will realise it for the benefit of people you owe money to. Example assets include:

• Inheritances, including property, cash, investments and any other asset of value
• A windfall from a win on the National lottery, football pools or bingo
• Money received after the date of bankruptcy but before the date of discharge from your bankruptcy

Will other people know I’m bankrupt?
It is now unlikely that Bankruptcy Orders will be advertised in a newspaper in your local area. Details are placed on a bankruptcy register maintained by the Department of Trade & Industry and the Insolvency Service. This is a public document and can be seen by the public via the internet.

Anyone who you have had a financial relationship with will be told of your bankruptcy, including banks & building societies, mortgage and secured loan companies, hire purchase companies, your landlord, people you owe money to and pension and insurance companies.

What about my bank account?
All of your bank accounts will be closed and any funds in them used by the Trustee to pay people you owe money to. If an account is in joint names with your spouse or partner then only half the funds can be taken. You’ll be allowed to open a new bank account with the authorisation of your Trustee.

Will my student loan be written off as well?
If your student loan was taken out after 1st September 2004 then it can’t be written off. It will be treated as if the bankruptcy had never happened – if you are currently having payments taken directly from your salary then these will continue until the loan is repaid. If you fall below the income threshold no payments will be made until your salary reaches the level where repayments automatically start. Note that interest will continue to accrue, as per your agreement with the Students Loan Company.

If your student loan was taken out before 1st September 2004, you can include the Student Loan Company as a creditor in your bankruptcy and your monthly payments to them should cease.

Is my job safe?
Not always. If you are a member of a professional body you will need to check to see if you will lose your membership. This can result in you being unable to continue in your current role. Further clarification will be available if you look at the terms of your contract of employment.

What advice should I get?
Always seek your own legal or financial advice about becoming bankrupt and the other options available to you. Official bodies like courts or the Insolvency Service won’t help you decide on the best way forward. Debt Free Direct will be happy to help you to review your own circumstances and advise on the best solution available to you.

What are my alternatives?
If bankruptcy isn’t a suitable or agreeable option to manage your debt problems then you may want to consider the following options:

• An informal arrangement with people you owe money to. You could write to all of them explaining your current financial position and agree an affordable payment plan to repay the debt.
• A debt management company that will negotiate monthly payment with people you owe money to. Your only obligation will be to provide them with regular information and make the agreed monthly payment, which they will pay to people you owe money to. The arrangement generally continues until the debts and any accruing interest are repaid in full.
• An Individual Voluntary Arrangement (IVA). This is a legally binding contract between you and people you owe money to – see IVA FAQ’s.

What happens in court?
The first step is to complete and submit the necessary forms with a fee. These will petition the bankruptcy clerk for you to become bankrupt, with the County Court that has jurisdiction for bankruptcy in your local area.

The bankruptcy clerk will give you an appointment when your application for a bankruptcy order will be heard. This can sometimes be on the same day as you submit the application.

At your hearing, the court will do one of the following:

• Stay or postpone proceedings – usually to await more information in which case a further hearing date will be set.
• Dismiss your petition.
• Appoint an insolvency practitioner if an Individual Voluntary Arrangement (IVA) is found to be more suitable.
• Grant your petition if becoming bankrupt is found to be the way forward.

How long will I be bankrupt?
The general rule is that you will be discharged after a maximum period of twelve months and will no longer be bankrupt. This period can be shorter should the Official Receiver complete his enquiries earlier and file a notice to that effect in court.

The duration of the bankruptcy can also be altered in the following circumstances:

• The court annuls the order on the grounds that all debts have been paid in full
• The court annuls the bankruptcy on the ground that the original order was not appropriate
• The discharge has been suspended as a result of failure to co-operate with the Official Receiver or Trustee. Only after the breach causing the suspension has been rectified will the twelve month period continue.

Although you are no longer bankrupt once discharged, it’s important to note that its effects may extend much longer, affecting your credit rating, for example.

What happens when the bankruptcy order is granted?
Once the order is granted, the court will contact the Official Receivers’ office and tell them that the order has been made. A representative of the Official receivers’ staff will then ask you to attend an interview at their offices to discuss your financial circumstances. You will be requested to complete and return a questionnaire prior to this interview.

Once the Official Receiver has all the relevant information he will decide what assets, if any, will be taken from you. He’ll also assess your income and expenditure to determine whether or not to make an income payments order as well.

How will it affect my credit rating?
Your credit rating will be affected. Credit reference agencies such as Experian, Equifax and Call Credit maintain records of your credit accounts. Failure to maintain contractual payments towards any debts will result in a default notice being made on your credit file. These notices will remain on your credit file for 6 years (unless the creditor agrees to remove them prior to this) and may affect your ability to obtain credit.