What exactly is Personal Insolvency or Bankruptcy?
Personal Insolvency is a term which covers both personal Bankruptcy and other insolvency processes, such as Individual Voluntary Arrangements (IVA’s).
Bankruptcy is the legal process by which a consumer or Sole Trader/informal partnership business with irrecoverable debt problems asks the Court to provide protection from creditors while the debtor’s financial affairs are sorted out.
Likewise, any creditor who is owed more than £750 (in England and Wales) can ask the Court to declare a debtor bankrupt and then recover any available assets to pay off such debts.
Bankruptcy is designed to provide a debtor with a fresh start to his/her financial life by wiping the slate clean. However, there are a number of issues which all debtors need to be aware of before any such steps are taken.
HOW CAN BPS HELP?
Whether your situation is disputed or not, BPS have the experience to adopt the right approach to achieve your objectives.
The main bankruptcy provisions are:-
- All first time, non-fault, l bankruptcies shall now only last for a maximum of 12 months before formal discharge.
- The debtor may additionally be issued with an Income Payments Order (IPO) asking them to make monthly payments to the Official Receiver, to help discharge the debts, for up to 3 years.
- In exceptional cases the debtor may be issued with a Bankruptcy Restriction Order (BRO) which limits his/her ability to obtain further credit if the debtor has been reckless in previous borrowing.
- The Official Receiver (who is appointed by the Court to oversee the bankruptcy process) has up to 3 years in which to dispose of any assets (usually the debtors home) to help repay creditors. it’s also worth noting that under the bankruptcy rules the Official Receiver has an obligation to find any alternative means to extract the equity from a property rather than simply sell it. For instance it may be possible for the debtor to remortgage the property or a third party may be able to buy out the debtor’s share of any equity.
Advantages of Bankruptcy
- You will immediately become protected by the Court from all your creditors’ debt recovery actions. You can automatically stop paying any of your unsecured creditors and refer them directly to the Court to register their claims.
- The Court appoints someone, either the Official Receiver or a nominee, to “step into your shoes” and deal with all your financial affairs on your behalf.
- Once your bankruptcy is officially discharged, most of your debts will be written off and you can start afresh.
The Disadvantages of Bankruptcy
- Bankruptcy Orders are still announced in a local newspaper where you have been resident for the past six months.
- An Income Payments Order may be issued against you that could extend your repayments in bankruptcy for up to 3 years.
- A Bankruptcy Court Order legally overrides any attempts to give away property to third parties unless a fair market value is paid (you cannot simply transfer the marital home to your husband/wife in contemplation of applying for bankruptcy at a future date unless the transfer took place a minimum of 2 beforehand).
- An entitlement to any future assets could be caught within the terms of a bankruptcy – your creditors many benefit from bequests in wills or an increase in future earning capacity if these assets came to you during the period of your bankruptcy.
- All bankruptcy proceedings carry an upfront Court fee to pay for the actual bankruptcy application.
- You may find it very difficult to obtain a bank account up to your discharge. Even if you change banks prior to your application for bankruptcy, the Official Receiver must inform all financial institutions of your bankruptcy application; it is then up to the individual bank or building society to decide whether to continue allowing you banking facilities.
- You will not be able to work in certain professional capacities or you will have to disclose your bankruptcy when applying for certain jobs for a period of time after the bankruptcy. For example, Landlords cannot hold a License as a bankrupt nor can one be a company director.
- If you are living in rented property, then your landlord may need to be informed.