UK Bankruptcy Advice - Truths and Myths, FAQ
Bankruptcy is a humiliating and public experience, it is also a very primitive and grossly unfair means of dealing with a debt situation, it is a no-win situation for all involved. Here we explain some of the truths and myths.
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As a company that always has our clients interests at heart, we will not recommend bankruptcy as a viable solution to serious debt problems if we consider that there is an alternative solution
The Myths & the Truths
Bankruptcy must not be taken lightly — It should not be considered if you have assets of any reasonable value and own your own home, even if there is littleor no equity. Contrary to what might be said about the new Enterprise Act, which states that certain classifications of bankrupts could be discharged in twelvemonths, this will happen in relatively few cases, and it should be remembered that the stigma of bankruptcy will probably NEVER go away.
Even after being discharged, it can affect the ability to obtain a mortgage or get credit for many years to come. Being declared bankrupt is a very public matter, some of the effects are;
Bankruptcy is always advertised:
The bankruptcy application will be advertised in the London Gazette and the local press where you live.
Notification is made to everyone financially connected:
Your bank, building society, creditors, landlord, etc will be informed immediately.
Bankrupts cannot run a business:
Any business you own will be closed immediately.
Future assets will be lost:
Any asset that might have been acquired during the term of the bankruptcy, such as inheritances, insurance payouts/maturities, equity in property, windfalls, etc., and possibly pension income.
All accounts closed:
Bank accounts, credit cards will be closed. Anything that is being purchased by lease or HP, such as your car, will be immediately returned to its owner.
Previous Bankrupts:
People that have been bankrupt before should be very careful about being made bankrupt again, as the minimum period of bankruptcy is 5 years, and could continue for up to 15 years before being discharged.
Professional & Business Status:
Certain employment situations will be prejudiced by being declared bankrupt, and professional and business status will be lost. Membership of many associations and societies will also be lost.
The Myths
"They will not take my house, it is in negative equity."
The Official Receiver will place a charge on the property, effectively preventing its sale, and will wait, long after your bankruptcy has been discharged, to get his hands on any available equity that has come about due to increased property values.
"They won't take my home, I have a wife & young family."
They will, unless your partner can prove they have an interest in the property, in which case the Official Receiver will allow your partner to purchase your share of the equity. If they are unable to do this, then the Trustee in Bankruptcy will, after 12 months, have the right to obtain possession and subsequently issue an eviction order.
"I put my home into my partners name years ago."
They will take your home, unless you can prove that your partner paid the full value at the time of the transfer and has since paid the mortgage in full. You will also have to account for the funds.
"My new business is in my partners name, and all profits will be taken by my partner."
This is regarded as a criminal activity by The Trustees in Bankruptcy and any assets earned during the bankruptcy will be forfeit.
Bankruptcy FAQ
Can the Official Receiver or his or her staff give advice as to whether it is appropriate for an individual to file his or her petition in bankruptcy?
The Official Receiver and his or her staff cannot give advice as to whether or not an individual should file his or her own petition in bankruptcy. If that individual needs independent advice, then they should consult a solicitor, accountant, licensed insolvency practitioner, Citizens Advice, or another suitable person.
Can the Official Receiver and his or her staff advise whether it is appropriate for an individual director to petition to the court for a winding-up order to be made against a company in which he or she has an interest?
Answer The Official Receiver and his or her staff cannot advise directors as to whether it is appropriate for them to seek a Winding-up Order against a company in which they have an interest, but they should approach a solicitor, accountant, licensed insolvency practitioner or Citizens Advice to get independent advice.
I have obtained my discharge, but am still unable to obtain credit, as my name is included on a credit reference agency's records. Will the Official Receiver arrange for the removal of the listing as I now have my discharge?
The Insolvency Service has no regulatory responsibility for credit reference agencies and cannot assist directly in the correction of information held. If you have any questions about the operation of a particular credit reference agency, or its listing policy please contact that agency.
Although credit reference agencies will update their records upon receipt of a certificate of discharge, a bankruptcy order is kept on the credit reference agencies' files for six years from the date the order was made.
Can I have a bank account?
There is nothing in the insolvency legislation which prevents a bankrupt from holding an account, but you should tell the bank or building society that you are bankrupt, since they may wish to impose conditions and limitations e.g. not allow a cheque guarantee card. You should not obtain overdraft facilities without telling the bank that you are bankrupt.
Can a bankrupt still trade?
If you are bankrupt you are still allowed to earn a living, and can do this by being self-employed or by carrying on a business, as long as you do not disobey the law by obtaining credit of £250 or more without disclosing that you are an undischarged bankrupt, and as long as you do not use another name unless you tell those with whom you trade of the name under which you were adjudged bankrupt. If you earn more than sufficient to meet the reasonable domestic needs of yourself and your family, the Official Receiver may apply for an Income Payments Order (IPO).
I am an employee of an insolvent. Am I allowed to claim wages?
The Redundancy Fund may pay claims for unpaid wages, holiday pay and wages in lieu of notice, up to certain prescribed limits, and redundancy claims. The Official Receiver will provide copies of the claim forms and an explanatory booklet.
When will I be discharged?
Since April 2004 the automatic discharge date is after one year.
How do I obtain a certificate of discharge?
You should write to the court where you were adjudged bankrupt quoting your most recent case reference.
How Long Does Bankruptcy remain on a credit reference ?
Your credit report will show your bankruptcy permanently. This could make it harder to rent an apartment, to obtain a credit card at a favourable rate of interest, and might make it very difficult to obtain a home mortgage loan or insurance.
“Wiping the slate clean” through bankruptcy also puts all future lenders on notice that you have had difficulty repaying your debts. Creditors are more likely to either refuse to extend credit, or to make you pay (through higher interest rates, for example) for the additional risk they are taking in extending you credit.
However, even with a bankruptcy on your credit report, many lenders will do business with you and extend you new credit. This is because the discharge obtained in bankruptcy leaves all future earnings free from the claims of past creditors.
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See Also Abacus Debt Advice- Problem Debt
This material is for general information and only constitutes advice in the broadest of terms. You should not rely on this information to make any decisions. Call our advisors on 0800 043 2444 for professional advice for your own particular situation.