Bankruptcy & the Bankruptcy Assistance service

February 2009

In many circles, bankruptcy continues to be viewed as a negative and bad procedure, and is surrounded by many myths making it appear to a layman as a procedure to be afraid of or ashamed about. In truth, bankruptcy is an ideal solution for individuals who cannot afford to repay their debts, and have little or no disposable income to be able to offer an ongoing repayment plan with their creditors - either through a Debt Management Plan (DMP) or an Individual Voluntary Arrangement (IVA). From April 2009, if you have no assets, very low disposable income and less than £15,000 of unsecured debt then a Debt Relief Order (DRO) may also come into consideration or alternative to bankruptcy.

Bankruptcies are advertised in your local paper, but the entry is relatively small and only appears for one day. You are entitled to retain a working bank account (but no overdraft) and will be allowed a reasonable amount of money to live off. In certain circles individuals may still feel some stigma, but these days the vast majority of people who declare themselves bankrupt, do so reluctantly because they have been left with no other choice.

A bankruptcy order may be obtained by any creditor owed more than £750, or you can personally apply for your own bankruptcy at your local County Court. Either way, assuming a bankruptcy order is granted, the Official Receiver - a government official - will then be appointed your Trustee and will contact you for details of your financial position. Subject to certain exemptions listed below, this means that your assets will be sold and the money raised used to pay your creditors back as much as possible. Occasionally, the Official Receiver will appoint an Insolvency Practitioner to act as Trustee in their place, but this is usually only done when the case is complex.

The items you will be allowed to keep include:-

• Ordinary household contents
• A modest motor vehicle (valued at no more than £2,500)
• Tools of the Trade - things that you need to run your business
• Pension (subject to certain exceptions)

If you have equity in your property, this may result in the property eventually being sold - but the Trustee will do their best to avoid this and will try and work with you to ensure you retain your home, and this could be done by arranging for a family member or friend to buy out your interest. The law currently discourages a Trustee from taking steps to force a sale of your property through the Courts during the first 12 months of the bankruptcy, so you have a reasonable time to deal with this important issue. In any case the Trustee has to resolve this within 3 years from the date of your bankruptcy order, and if he/she fails to do so the ownership of the equity reverts back to you legally. If the value of your equity is less than £1,000, the Trustee will not be able to force a sale.

If you have surplus income above the needs of yourself and your children, you will be expected to make monthly contributions to your creditors for up to three years and can be ordered to do so by the Court. Also, if you win or inherit anything during the bankruptcy, such as an inheritance or lottery win, that too will be available to your creditors.

In most cases these days, the bankruptcy ends after one year, and this can even be sooner at the discretion of the Official Receiver. So far as you are concerned you no longer have any debts - apart from fines, Student Loans or Child Support Agency (CSA) arrears which cannot be left behind. Even if some of your assets remain unsold after the end of your bankruptcy, they will still remain available to your creditors when your Trustee can sell them. The existence of your bankruptcy will remain on your credit file for six years from the date of the bankruptcy order.

There are several restrictions you have to observe whilst bankrupt, the main ones being that you cannot take credit of more than £500 without advising the lender that you are bankrupt, you cannot act as a company director, a Member of Parliament or a Justice of the Peace. For most people these restrictions are of little consequence.

Bankruptcy may have different consequences for different people. A professionally qualified person, such as a solicitor or accountant, may have his/her practising certificate suspended because of their bankruptcy. People in such a position may well be best advised to seek an IVA, and you can even put forward an IVA if you have already been made bankrupt under certain circumstances. If you are regulated then there may be notification requirements in the event of bankruptcy.

If you are considering going bankrupt then it would be wise to check with the professional organisation that you are a member of first, to see if this will have an effect on your accreditation. Likewise, in certain jobs, going bankrupt can be contrary to the terms and conditions in your contract of employment. Make sure you check this to see if you would be affected.

Quick Guide on Professional rules on going bankrupt

• Employment - Barrister: Cannot act whilst bankrupt
• Employment - Chartered Accountant: Cannot act whilst bankrupt
• Employment - Member of Parliament (MP): Cannot act whilst bankrupt
• Employment - Local Authority official: Cannot act whilst bankrupt
• Employment - Justice Of The Peace (JP): Cannot act whilst bankrupt
• Employment - Police or Armed Forces: Bankruptcy can severely hinder career and promotion prospects
• Employment - FSA registered: Most regulated jobs in the financial sector can become untenable if you are declared bankrupt

Conclusion

In summary bankruptcy is not a punishment or something to be ashamed of, on the contrary it is a sanctuary for indebted individuals to avail of in order to deal with their creditors.

Whilst the application forms are relatively easy to complete, you can always seek professional assistance to help you finalise matters properly and arrange for your attendance at Court.

EuroDebt offer a Bankruptcy Assistance service following your meeting with your Regional Debt Advisor. We will complete the forms on your behalf and you will have the chance to discuss your decision with an experience Insolvency Practitioner once your paperwork has been processed. Should you choose to progress with your bankruptcy then we will arrange your attendance at Court.

Our fee for this Bankruptcy Assistance service is £250. This is in addition to any Court fees that are applicable, which are:

• The Court Fee of £175
• The Official Receiver's Deposit of £525

To arrange a no obligation meeting with a EuroDebt Regional Advisor call 0800 2 98 97 98 or complete the Contact Us form and add "Bankruptcy Assistance" in the comments field.

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