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Personal Insolvency
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BankruptcyOnly private individuals can be made bankrupt. Bankruptcy does not apply to companies or partnerships, although individual members of a partnership can be made bankrupt. An individual is made bankrupt by a petition presented to the Court. The petition must satisfy the Court that the individual cannot pay their debts. If the Court is satisfied, it will make a bankruptcy order. The purpose of the bankruptcy order is to appoint a responsible person who has a duty to collect the bankrupt's assets and distribute them to their creditors in accordance with the law. Who may petition for a debtor's bankruptcy? Any creditor owed at least ?750. Two or more creditors may join together to reach this threshold. A debtor may petition for their own bankruptcy. A supervisor of an individual voluntary arrangement may petition if either the debtor fails to comply with their obligations under the arrangement or if the debtor has provided false or misleading information to gain acceptance of the arrangement. Should I petition for my own bankruptcy or wait for a creditor to petition? Petitioning for your own bankruptcy will result in an order being made sooner than by waiting for a creditor to petition. The sooner your bankruptcy starts, the sooner it will be over. As soon as the bankruptcy order is made, your estate will vest in the Official Receiver and you will be protected from the unpleasantness of visits by bailiffs or any other action against your property by unsecured creditors. The disadvantage is that you will have to pay the Court fee of ?370 before the Court will hear your petition. It is ironic that many debtors who need to be made bankrupt do not have the money to pay the Court fees and have no alternative but to wait for a creditor to petition and bear the cost. How long will it last? An individual remains bankrupt until his discharge. Most bankrupts are automatically discharged one year after the date of the bankruptcy order or even less, perhaps as quickly as within eight months if there are no issues. If the debtor has previously been bankrupt in the last 15 years then discharge is not automatic. The bankrupt has to apply to Court for their discharge which they cannot do until 5 years after the date of the bankruptcy order. If the debtor has not been bankrupt before and has total debts of less than ?20,000, the Court will issue a certificate of summary administration under which there is automatic discharge 1 year after the date of the bankruptcy order. Will I lose my home? Many people assume that they will automatically lose their home if they are made bankrupt. This is not always the case. If there is a mortgage on the property, the bankruptcy order does not affect the rights of the mortgagee. Should you fall into arrears with your mortgage, then the mortgagee can repossess the property in accordance with the terms of the mortgage deed. Your home, or your share of it, automatically vests in your trustee on their appointment without any conveyance being necessary. Your trustee has the power to apply to the Court for an order to evict you and then sell the property. If you have a spouse living there or children under the age of 18 years then an order for sale will not normally be granted until at least 12 months after the date of appointment of the trustee. If your house has only a small amount of equity in it, then it may be possible for a friend or relative to buy out your share. Application for an order for sale is normally a last resort. Any equity in the house should be dealt with as early as possible in the bankruptcy because the longer it is left, the more your share will grow and the more it will cost to buy it from your trustee. Will an income payments order be made and how much for? At your initial interview with the Official Receiver, your monthly income and outgoings will be reviewed. If you have any money left over after meeting your essential living requirements, then the Official Receiver will ask you to commit to an Income Payment Agreement for the amount deemed affordable for you to pay into your bankruptcy. If agreement can not be reached then the Official Receiver may apply to the Court for an income payments order. This normally runs for 36 months from the date the order is made, therefore it will still run for a few months after your discharge from bankruptcy. Most Courts make orders for around half of your disposable income. Voluntary contributions under IVAs are far more onerous in that they last for 5 years and take nearly all of the debtor's disposable income after allowing a small safety margin for contingencies. Should there be a change in your circumstances, then it is possible for the income payments order to be varied or revoked. Should you fail to comply with an income payments order, then an attachment of earnings order may be made so that your employer has to deduct it from your wages before paying you. Will I lose my job? Bankrupts are automatically barred from the following: acting as a company director without leave of the Court, acting as a Member of Parliament or a local councillor and membership of all financial, legal and accountancy regulatory bodies. Will I lose my car? In most cases no. If it is an expensive car, your trustee has the power to sell it, but they must replace it with another vehicle capable of doing the same job. If your car is on finance then under the terms of most finance agreements, the finance company is entitled to terminate the agreement and take back the vehicle in the event of bankruptcy. Will I lose my pension? For bankruptcy orders made on petitions presented after 29th May 2000, the bankrupt's pension fund does not form part of their estate. However if during the five years prior to the date of the bankruptcy order, the debtor paid an unusually large amount into their pension fund at a time when they were either insolvent or they were likely to become so, then the trustee may apply to the Court to recover these funds from the pension fund. If the bankrupt is drawing their pension at any time during the bankruptcy, then the income will be taken into account in deciding on an income payments order. What am I allowed to keep? Such tools, books, vehicles and other items of equipment as are necessary for use personally by you in your employment, business or vocation. Such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of yourself and your family. Will I be able to carry on in business? Yes but with the following restrictions:
What are my responsibilities? You must cooperate with the Official Receiver and your trustee in bankruptcy. Failure to do so may result in you being examined under oath in Court and may also result in your discharge being suspended. You must deliver up to your trustee any property, books, papers or other records. Failure to disclose assets is a criminal offence and bankrupts who try to conceal assets can expect to receive a custodial sentence. If you acquire any assets or there is an increase in your income, you must notify the Official Receiver or your trustee within 21 days. |
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This document explains the relevant position only in general terms. We do not intend it to be used as formal advice about a specific situation, for which you should consult with a qualified insolvency practitioner and not rely upon this document. Portland would be pleased to advise you formally and you should contact one of the directors listed to arrange this. Portland regrets it is unable to accept any responsibility to anybody who seeks to rely on this document. |
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