Bankruptcy July 2016

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1 Bankruptcy July 2016

2 What is bankruptcy? Bankruptcy is one method of dealing with debts you cannot pay. If you are declared bankrupt your assets will be shared among your creditors and, after a period of time, usually a year, most outstanding debts are written off and you can make a fresh start, subject to some restrictions. However, after bankruptcy you will find it difficult to obtain credit or get a mortgage. The effects of bankruptcy are the same whether you file for your own bankruptcy or whether you are made bankrupt by one or more of your creditors. Therefore you should consider very carefully whether bankruptcy is suitable for you and see first if there are any other alternative solutions to dealing with your debts see alternatives to bankruptcy at the end of this factsheet. If your circumstances are different, for example, you are running a business, please see the section on further help and advice. How can I be made bankrupt? You can be made bankrupt in one of three ways: voluntarily - by applying yourself where your creditors apply to make you bankrupt see below where an insolvency practitioner applies because you default on an Individual voluntary arrangement In order for a creditor to make you bankrupt you must owe at least 5000 (from October 2015) to that creditor, or, if two or more creditors are owed a combination of 5000, they can petition together. A creditor must first send you a statutory demand. If you receive one of these you should seek further advice as you have only 18 days from the date it was served to have this set aside or 21 days to make a payment or to negotiate an offer. This factsheet deals with voluntary bankruptcy only. Are all my debts included in the bankruptcy? Most of your debts are written off once you are discharged from bankruptcy. However, there are some exceptions. The following cannot be included in your bankruptcy and therefore you will still be liable for them afterwards: fines, penalties, compensation and forfeiture orders imposed by any court (except parking and road traffic offences) student loans debts owed under family proceedings debts incurred through fraud (including benefit fraud) debts from personal injury claims against you secured loans and other secured debts, such as debts secured with a charging order social fund loans and some benefit and tax credit overpayments If a debt is in joint names, the bankrupt is usually no longer liable for the debt but the other party will still be liable

3 How do I make myself bankrupt? From 6 April, in England and Wales, a debtor will apply for bankruptcy on-line rather than applying on paper to the court. See The adjudicator has 28 days to decide whether to make the bankruptcy order and may ask the debtor for more information. Each section is now written in plain English, with guidance notes and the debtor can log in and out. The deposit is 550 and the fee 130. As the fee is paid to the adjudicator it can no longer be remitted if a debtor is on a low income. The monies can be paid in instalments Official Receiver An Official Receiver is a civil servant in the Insolvency Service and an officer of the court. They are responsible for administering your bankruptcy and protecting your assets from the date of the bankruptcy order. He or she will also act as trustee of your bankruptcy estate unless you have valuable assets when an insolvency practitioner may be appointed instead. The Official Receiver is also responsible for investigating your financial affairs before and during your bankruptcy. They may report to the court and have to report to your creditors. They must also report any matters which indicate that you may have committed criminal offences in connection with your bankruptcy, if your behaviour has been dishonest, or if you have been in some way to blame for your bankruptcy. They will assess what you need to live on, decide how you can repay your creditors, which of your assets you can keep and which must be sold to pay your debts. Bankruptcy may not therefore be the best choice for you if you are a homeowner, have savings or expensive items of value. If this applies to you, look at the alternatives to bankruptcy section at the end of this factsheet. Assets Once you are made bankrupt, your assets transfer to the trustee. Note: There may be a delay of several days between your bankruptcy order being made and the Official Receiver taking control of your money and property. However, your bank or building society accounts may be frozen immediately. Therefore, you should take just enough money out of your account to cover your essential living costs for the next few weeks, if possible. The trustee may wish to sell any assets you have. Certain goods are not treated as assets, for example, clothing, bedding, furniture and household equipment for basic domestic needs. Items necessary for you to carry on your employment, such as books, tools or a car, can also be excluded. However, your car is likely to be sold as an asset unless you can prove that it is absolutely necessary for employment, business or vocation. In this case you may be allowed to sell the car and purchase a cheaper one instead. If the Official Receiver decides you have assets then they will usually be sold as soon as possible. If you are discharged from bankruptcy before any assets are dealt with, they will

4 not belong to you on discharge. They will continue to belong to the Official Receiver until they are sold. The only asset treated differently is the house where you live (see below). The Official Receiver may apply to the court for an order restoring property to him or her if you disposed of it in a way which was unfair to your creditors (for example, if, before bankruptcy, you had transferred property to a relative for less than its worth). They may claim assets which you obtain or which pass to you (for example, under a will) while you are an undischarged bankrupt. What happens to my home? If you own, or have a financial interest in, your home or any other property, you must seek help and advice before considering bankruptcy. This is very important as your share of the property after any secured debts (for example, a mortgage) have been paid, transfers to the trustee. The trustee will sell your home if this is the only way to release your interest in the property to your creditors, unless the value of interest in your property is less than 1,000. If you have a partner or children living with you it may be possible for the sale to be put off until the end of the first year after your bankruptcy. A family member or friend may be able to buy your interest in your home from the trustee to prevent the property from being sold. They should contact the trustee. The trustee usually has three years in which to deal with the property. If the trustee cannot, for the time being, sell your home, he or she may obtain a charging order on your interest in it, but only if that interest is worth more than 1,000. If a charging order is obtained, your interest in the property will be returned to you, but the legal charge over your interest will remain. The amount covered by the legal charge will be the total value of your interest in the property plus statutory interest (currently 8%) and this sum must be paid from your share of the proceeds when you sell the property or the trustee applies to the court for an order of sale. If you rent your home, the trustee will normally have no interest in it and therefore cannot sell it. However if you do not comply with the terms of the tenancy agreement, the landlord may take action against you. If you have rent arrears, in some situations your landlord could start repossession action even after you go bankrupt - seek advice. Hire purchase agreements Most hire purchase agreements have a clause which allows the hire purchase company to terminate the agreement if you become bankrupt. In this event, you will have to return the item. This will happen whether the trustee deems the item to be exempt from the bankruptcy or not. In other cases, if there is insufficient equity in the vehicle to make selling the vehicle worthwhile, the trustee might invite the finance company to repossess the vehicle anyway or allow a third party to take over the agreement. Sometimes you may even be allowed to keep the car

5 Insurance policies/pensions Generally life assurance and endowment policies will pass to the trustee unless it is part of the security of the secured loan or a third party is named as beneficiary. Most pension schemes aren t included in your bankruptcy, including UK state pension schemes or schemes approved or registered by HM Revenue & Customs which are usually: occupational (employers) pension schemes approved for tax purposes personal pensions approved for tax purposes stakeholder pensions retirement annuity contracts It may be possible to exclude other types of pension take advice. If you are now able to take money from your pension pot because you are 55 years or over, but have chosen not to do so, the trustee may look at the value of your available pension fund. If this would give you access to enough money to make a different arrangement to pay your creditors, the trustee can ask the court to cancel (annul) the bankruptcy seek advice before proceeding with bankruptcy. If you have already drawn down on the pension scheme this will be counted as income (see below). Income You will usually have to make a contribution towards your debts if you have surplus income after paying your ordinary household expenses. This will usually only happen if you have 20 per month or more available income after paying ordinary household expenses such as your mortgage, rent, household bills and housekeeping. Even though your bankruptcy will usually only last one year, you will have to carry on paying monthly instalments for another two years after you are discharged, three years in all. This is called an income payments agreement. If you do not make voluntary payments then the Official Receiver can ask the court to make an income payments order which will last for three years from the date of the order. This should not normally be sought when the bankrupt s ONLY source of income is state benefits. Restriction and offences A number of restrictions are made during bankruptcy that may affect your day to day activities. Your bank accounts will usually be frozen by the bank once they are aware of the bankruptcy order and any monies in the accounts will become the property of the trustee. Therefore you will need to make alternative arrangements for receiving any wages or benefits and paying standing orders, direct debits etc. After the bankruptcy order, the bank may allow you to open a new bank account but you will have to inform the bank that you are an undischarged bankrupt

6 Even after discharge, many people will find it difficult to obtain further credit. Information on individual insolvencies are held by credit reference agencies for at least six years. Utility companies, gas, electricity and water, may refuse you credit and insist on a prepayment meter or a security deposit. Alternatively you may transfer the account to someone else, for example, a partner - check your policy. Certain kinds of employment may also be affected by bankruptcy, for example, people working as estate agents or in the credit industry. If you belong to a professional body which prohibits bankruptcy you could be struck off, for example, solicitors or accountants. Notice of the bankruptcy is registered at the land registry, advertised in the London Gazette and recorded on the insolvency register which is available online. Whilst you are bankrupt it is a criminal offence to: obtain credit of more than 500 without telling the lender you are bankrupt carry on business (directly or indirectly) in a different name from that in which you were made bankrupt be concerned (directly or indirectly) in promoting, forming or managing a limited company, or acting as a company director, without the court's permission You cannot hold certain public offices, such as a trustee of a charity or pension fund, or act as an insolvency practitioner or an intermediary for debt relief orders. These restrictions usually end on discharge. Bankruptcy restrictions orders The Official Receiver can apply to the court for a bankruptcy restrictions order if they think you have been dishonest either before or during your bankruptcy, if you were to blame for the situation or if you have acted in such a way as to make matters worse. This includes failing to keep or produce records that would explain a loss of money or property, giving away assets or selling them at less than their value, deliberately paying off some creditors in preference to others, incurring debts that you knew you had no reasonable chance of repaying. The more harm the court believes your behaviour causes your creditors, the longer the bankruptcy restrictions order is likely to last. If you accept the Official Receiver s allegations, you may offer to enter into a bankruptcy restrictions undertaking instead. This has exactly the same effect as a bankruptcy restrictions order but does not involve going to court. As you will be admitting the unfit conduct, the period of the undertaking is likely to be shorter than if the court made an order. A bankruptcy restrictions order or undertaking can last between two and 15 years and means you are subject to the same restrictions as an undischarged bankrupt (as above). They can also affect your employment and your ability to hold certain offices such as serving as an MP, local councillor or school governor or even exercising your right to buy

7 How long does bankruptcy last? Unless you are subject to a bankruptcy restrictions order or undertaking you will usually be automatically discharged from bankruptcy after a maximum of 12 months. This period may be shorter if the Official Receiver concludes enquiries into your affairs and files a notice in court. You will be sent a copy of the notice. You can obtain a certificate of discharge from the court that dealt with your bankruptcy for a fee of 70. You can also apply for a bankruptcy order to be annulled if you have paid all the debt in full or the bankruptcy order should never have been made. If you are making payments under an income payments order or agreement you must continue to make these payments even after the date of your discharge. What happens when bankruptcy ends? After you are discharged you are released from most of the debts that you owed apart from non-provable debts (see above). When you are discharged you can borrow money and carry on business without the restrictions that apply during bankruptcy. However, you will find it more difficult to obtain credit or even open a bank account as you must declare, if asked, that you are a discharged bankrupt. Any assets that the Official Receiver held or claimed during the bankruptcy are not returned to you on discharge. It may be some time after your discharge before all your assets, such as your home, are dealt with. The Official Receiver or trustee has three years from the date of your bankruptcy to deal with your home. Tax If you are employed you do not have to pay any PAYE in the tax year of your bankruptcy. However, as this means your take-home pay will be higher, you may have to pay some towards your debts. Any rebate due will belong to the trustee. Alternatives to bankruptcy There are other alternatives to bankruptcy. Debt management plans that reschedule your debts, an administration order, an individual voluntary agreement or a debt relief order may be more suitable. These are mentioned below but more detailed information is available at Debt management plans You could write to your creditors setting out your financial position and detailing your income and necessary expenditure to see if you can negotiate affordable payment arrangements. Non priority creditors should be offered repayments on a pro-rata basis. See How to manage your debts on

8 Administration orders An administration order allows you to pay all your debts by making a single monthly payment into your local county court, which includes the cost of the order. The court then divides this payment among your creditors. You can ask for a composite order if you are unlikely to clear your debts in a reasonable time. This usually means that after a certain number of years of paying the court (usually three) the rest of the debts in the administration order will be written off. To get an administration order you must have:- total debts of under 5,000 at least one county court or high court judgment at least two debts Apply on form N92 (application form) and see N270 (notes to help fill it in). The form is available from Individual voluntary arrangements An individual voluntary arrangement is a formal arrangement to repay your creditors. You will either need to be able to raise a lump sum to pay your creditors or, more usually, make regular payments from your income to your creditors. An individual voluntary arrangement is arranged through an insolvency practitioner who will charge you for the service. Do not pay an organisation to find a practitioner for you. A directory is available at or you could use one of the free debt advice agencies listed at the end of the fact sheet. An individual voluntary agreement normally lasts for 5 years. If the terms are not kept, either your creditors or the insolvency practitioner can apply to the court to make you bankrupt. Debt relief orders Another alternative to bankruptcy, for people on a low income, is a debt relief order. In order to be eligible you need to have total debts of no more than 20,000, assets of no more than 1000 (you can also have a car valued at up to 1,000), and a disposable monthly income of 50 or less. The fee for a debt relief order is 90 and applications for a debt relief order are made through a debt advice intermediary, for example, an advice worker at your local CAB who has been accepted by the Insolvency Service as being a debt relief order approved intermediary. Like bankruptcy, people will usually be discharged within a year and, with a few exceptions, any remaining debts will be written off. Further information on the alternatives to bankruptcy are available at

9 Further help and advice Citizens Advice Bureaux (CAB) Online information: Information about local CABx and opening times: The Insolvency Service: PO Box 203, 5th Floor, 21 Bloomsbury Street, London WC1B 3QW Insolvency Enquiry line: Business Debtline: Offers a free, confidential and independent helpline for self-employed people and small businesses who have debt problems National Debtline: StepChange Debt Charity (formerly CCCS): Payplan: How you can contact Hertfordshire County Council Our website Visit our website for more information about support for carers and adult social care - make a referral for care services or apply online for meals on wheels or a Blue Badge If you would like more information about benefits and debt you can find a wide range of factsheets Hertfordshire Directory Find national and local community groups, charities, services and activities HertsHelp Independent information and advice on local community services and care funding Telephone:

10 Minicom: Call us For information and advice on how to get care and support Telephone: Text Message: Textphone: Calls to 0300 cost no more than a national rate call to a 01 or 02 number If you are worried that you or someone you know is at risk of abuse or neglect Call us on (24 hours a day) If you need help to understand Call if you would like help to understand this information or need it in a different format. You can also ask to speak to someone in your own language. This information is correct at time of writing. It is for guidance only and is not an authoritative statement of the law

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