What is bankruptcy? What is Voluntary Bankruptcy?

What is an Insolvency Practitioner?

Bankruptcy is a formal and legal insolvency procedure for individuals only that are insolvent.  A limited company cannot be declared bankrupt.

How to become bankrupt?

Petition for your own Bankruptcy or some people call this Voluntary Bankruptcy

If you are insolvent you can petition for your own bankruptcy, however, we would strongly recommend that you take urgent FREE advice from a Licensed Insolvency Practitioner prior to petitioning for your own bankruptcy and please feel free to contact us.  Bankruptcy can have affect your employment (either current or future), your assets including your home and your company if you are a Director.

A creditor (someone you owe money to) can petition for your bankruptcy through the Courts due to non-payment of a debt

Your creditors (people, organisations or companies that you owe money to) have chased you for payment and quite often have already obtained a County Court Judgment (CCJ) and as a last resort they issue a bankruptcy petition in the Court for your bankruptcy.  One organisation that issues the most petitions throughout the UK is HM Revenue & Customs for outstanding taxes.  If you are on the point of receiving a petition or have received a petition it is still not too late to take advice.  We strongly recommend that you take FREE advice from a Licensed Insolvency Practitioner to see if alternatives to bankruptcy would be better for you.  Please feel free to contact us TODAY.

What happens once I have been made Bankrupt?

The Official Receiver (Government Department) will initially deal with your affairs and takes the role as your Trustee.  In some cases a Licensed Insolvency Practitioner is appointed as the Trustee.

The role of the Trustee is to realise your assets (turn your assets into cash) and after the costs of the bankruptcy distribute the balance to your creditors.

Your Assets

Excluded assets (assets that you can retain) – not an exhaustive list

  • Tools of the trade – assets that you need to earn a living
  • Household items – most items that are in your home are excluded, however, if you have a “rolex watch” antique table, expensive piece of art etc these may be sold by your trustee.
  • Equity in your home (Value of home less your mortgage and secured loans) – if your share of the equity in your home is less than £1,000 this would be excluded
  • Vehicle – less than £1,000
  • Pensions – although the law changes regularly on this point

Included assets (assets that the Trustee will collect and sell) – not an exhaustive list

  • Any non-essential items which have a resale value
  • Stocks, shares and investments
  • Equity in your home if more than £1,000
  • Equity in investment properties
  • Holiday homes or caravans
  • Vehicles
  • Savings can include pensions (although the law changes regularly on the point of pensions)
  • Surplus income – The Trustee will review your income and essential household expenditure and if you have a monthly surplus then this amount will be paid to the Trustee for a period of 36 months known as either an Income Payment Order (IPO) or Income Payment Arrangement (IPA).

 

What happens to my creditors/liabilities (people I owe money to) in bankruptcy?  

Generally, all your unsecured creditors (people/companies that you owe money to) will be written off and the creditors are prevented from taking any further legal action against you including any recovery action so this prevents Bailiffs from continuing to pursue you.  If you are declared bankrupt and a Bailiff attends your home, our advice is not to answer the door and immediately contact your Official Receiver/Trustee who will then deal with the Bailiff for you.

Creditors that are not written off as a result of bankruptcy:

  • Secured creditors, mortgage/secured loans on properties or vehicles (these payments need to be maintained even during the term of bankruptcy otherwise the lender may start possession proceedings).
  • Child Maintenance arrears
  • Student Loans
  • Court Order against bankrupt for personal injury claims
  • Criminal fines
  • Debts taken out after the date of bankruptcy
  • Social fund loans

How long does the bankruptcy last?

The bankruptcy normally lasts for one year, however, the Trustee is unlikely to have concluded their work and they may continue working on your bankruptcy for many years post the end of your bankruptcy.  For example, the Trustee may have to collect your Income Payments Order/Arrangement which lasts for 36 months or deal with the sale of your home or investment properties and sale of properties can take time.

The Official Receiver can apply to have the bankruptcy extended for a period up to 15 years and this is known as a Bankruptcy Restriction Order normally due to the bankrupt acting dishonestly or recklessly or for not cooperating with the Official Receiver/Trustee.

Any good or bad entry on your personal credit file remains on your credit file for six years and this includes bankruptcy.

Who should avoid bankruptcy?

Employment – some employers frown on someone being declared bankrupt and someone that has been declared bankrupt may find that it breaches their contract of employment or future employers will not employ someone that has previously been made bankrupt.  Some examples include bankers, Police officers, certain Government Departments, financial services, some security roles, Pub Licensee, MOT Tester, holder of haulier operators license, and armed forces.

Directors of a Company – a bankrupt is unable to be involved in the formation or running of a Company including being a Director, Shadow Director or De Facto Director.

Being a Member of a professional organisation examples include Chartered or Certified Accountant, Solicitor or a Licensed Insolvency Practitioner

Some employers or professional organisations may preclude you during the term of your bankruptcy but allow you to recommence once your bankruptcy has ended and some may preclude you for life.  It is therefore very important to check with your employer, contract of employment or the organisation that you belong to.  We also add that younger people may want to consider what they wish to do in the future as becoming bankrupt may prevent you from pursuing your employment dreams in later life.

Other sundry matters that may affect you during bankruptcy

  • Your bank accounts are normally frozen as a result of bankruptcy.  You can speak to your Official Receiver/Trustee to arrange for these accounts to be unfrozen.  This can take time and for various reasons this is not always possible.
  • You are not allowed to obtain more than £500 of credit during the period of your bankruptcy without informing the lender that you are bankrupt.
  • The costs of petitioning for your own bankruptcy is in the region of £700, this is a Court fee only and the process is relatively straight forward.  DON’T use companies that advertise to “hold your hand through this scary process” as they will charge you a small fortune.  The process is designed to be used by an average person and is relatively straight forward.  If you are really struggling completing the online forms then we recommend you make an appointment with the Citizens Advice Bureau (CAB).
  • Bankrupts can struggle trading their businesses during the period of bankruptcy
  • Bankruptcy stays on your credit file for six years and can cause you difficulties for six years in obtaining credit including obtaining a mortgage or re-mortgaging for a better deal

Alternatives to Bankruptcy

If you have managed to read the whole of this blog, you will appreciate you should not become Bankrupt lightly, whether petitioning for your own bankruptcy (voluntary bankruptcy) or allowing someone to petition for your bankruptcy.  We strongly recommend that you take urgent action TODAY and contact us for an urgent FREE of charge no obligation meeting or chat over the phone.

Remember – only Licensed Insolvency Practitioners can assist you with formal insolvency appointments (this is a legal requirement) and are best placed to provide insolvency/debt advice.  Licensed Insolvency Practitioners are highly regulated and have professional indemnity insurance.  Unfortunately, there are a number of unregulated “debt advisors” advertising on the web that demand payment for their costs and then have to refer you to a Licensed Insolvency Practitioner for any formal insolvency who may also require payment and you could effectively end up paying twice unnecessarily.  In our experience many debt advisors provide poor or wrong advice and in some cases encourage Directors to break the law.

RPG Business Recovery is part of Royce Peeling Green Limited (a firm of Chartered Accountants) and was established over 100 years ago (established in 1911).  RPG have offices in Manchester, London and North Wales.  All Insolvency Practitioners at RPG Business Recovery are authorised and licensed by The Institute of Chartered Accountants in England and Wales.  

At RPG Business Recovery we highly recommend that you should always take advice as early as possible as this improves the chances of avoiding bankruptcy.  Please feel free to contact us for a FREE no obligation advice meeting or if you prefer you are welcome to contact our Licensed Insolvency Practitioners directly.  Our Insolvency Practitioners are Alan and James. You are welcome to contact either Alan (Mobile 07580 885750 or email acoleman@rpg.co.uk) or James (Mobile 07717 001087 or email jfish@rpg.co.uk) directly.

Bankruptcy