As mentioned above, there is a level of uncertainty surrounding bankruptcy which we are aiming to clear with this article.
The bankruptcy basics: how bankruptcies work
Filing for bankruptcy can be done on the government website, where you will have to pay a £680 charge (which you will not get back one you have been discharged from bankruptcy). A trustee in bankruptcy will then be appointed and will take control of your personal assets, attempting to recoup as much as possible for your creditors.
As a general rule of thumb, your bankruptcy order will be complete within 12 months. In some cases, if the Official Receiver believes that you have behaved fraudulently, he can apply to have the bankruptcy extended – this is called Bankruptcy Restriction Order. Once the bankruptcy has been completed, your information will be removed from the Insolvency Register and you can begin rebuilding your credit file.
More information on how bankruptcies work and the bankruptcy procedure – from start to finish – can be found here.
Dispelling the bankruptcy myths
As mentioned above, there is a substantial air of uncertainty surrounding bankruptcy for many. To make the process a little easier, we take a look at some common myths and share our debt management advice below:
#1 You will lose everything
Many believe that filing for bankruptcy will see them lose all items. However, you will, likely, be able to keep many of your possessions. Once a bankruptcy order is made, the property belonging to you is treated as the ‘bankrupt’s estate’. Likewise, any property that is acquired during the personal insolvency procedure is also considered as part of that estate. However, it is the extent of what is relinquished that many find confusing.
While it is true that the bankruptcy trustee will take control of your assets and freeze your accounts, you will not be left without your possessions. For instance, tools, equipment, cars and anything else that is required for your business of employment – otherwise known as ‘tools of the trade’ – is yours to keep. If you can’t work, you cannot earn a living and generate money to repay your creditors. Therefore, those possessions will be left alone during the procedure. Similarly, essential household items will not be taken, such as bedding, clothing, furniture and household equipment that satisfy the basic needs for your family and those living in the home.
It’s also important to note that the trustee has several options for your home during bankruptcy, and as such, they will request that an agent carry out a valuation of your property. However, it can be possible for you to keep your home when filing for bankruptcy, and we have outlined those options here.
#2 You can hide assets
It’s critical that you are open and honest with your bankruptcy trustee regarding your assets. Any hidden assets or non-disclosures will result in severe consequences, with the trustee even able to suspend your bankruptcy order indefinitely. Essentially, this means there is no end to the bankruptcy consequences upon you. The trustee will take care of your finances and propose a realistic debt management plan, so you must disclose all information. Not doing so could see you attend a public examination, which could, subsequently, result in an arrest warrant if you did not show.
#3 You will lose your car
As mentioned earlier, it may be possible to keep your vehicle – especially if you use it for your trade. If you require the vehicle for employment, then you will likely be able to retain the possession to generate your income. However, this point also depends on the whether the car is owned by you, or subject to finance, as well as the value of the vehicle. For instance, there is no need for a high-value car for travel, if a mid-priced hatchback would do the same job.
#4 Everyone will find out
Another of our common bankruptcy myths is that everyone will know you have filed for bankruptcy. It is true that official notices of your bankruptcy petition will be placed in The Gazette, with your information also filed publicly on the Insolvency Register, but those are for the benefit of your creditors. It’s highly likely that financial institutions – as opposed to your neighbours and family – will be aware of the notices, unless you are a celebrity, of course. However, if you are worried, seek debt management advice from your trustee.
#5 You can no longer work
This is another one of the more common bankruptcy myths, and is certainly not true. It is not in the interests of your trustee – or creditors – to prevent you from working, particularly as you need an income to make repayments and fulfil the debt management plan. When it comes to how bankruptcies work, you can, most definitely, carry on working.
There are, however, exceptions to the rules, especially for those that are currently working as directors. You will need an exemption from court to continue in such roles. You must also note that bankruptcy may affect positions within the finance sector, and can also offer restrictions on the ability to obtain credit. If you are concerned about the consequences of your career and credit, we suggest you seek immediate insolvency advice as soon as you notice the potential signs of bankruptcy.
#6 Creditors cannot make me bankrupt
Your creditors can petition for your bankruptcy. They can only do this, however, if they are owed more than £5,000. The procedure for the creditors is costly, so is considered a last resort – but you should not ignore the petition.
Generally, creditors will send a formal demand for payment, otherwise known as a ‘statutory demand’. This demand may then be followed by a bankruptcy petition. If you receive a statutory demand, seek insolvency advice as a priority to avoid the worst case scenario.
#7 Bankruptcy lasts a long time
Typically, bankruptcy lasts around 12 months, with many bankruptcy myths suggesting a much longer time period. The bankruptcy will be listed on your credit file for six years after you have been discharged, but you will be removed from the Insolvency Register once completed.
#8 I will be automatically discharged if I don’t pay
The time period for bankruptcy has been reduced from three to one year, which many believe works in their favour. However, if you believe that staying away from your bankruptcy trustee for the year will see you automatically discharged, you are wrong. The trustee can apply to suspend the automatic discharge, meaning you will have to continue to make repayments. It’s also possible that your discharge could be suspended indefinitely, so there is no end to your order in sight.
The best thing you can do is to cooperate with your trustee who is, essentially, working to repay your creditors and ensure your financial situation improves.
#9 You can keep assets safe by giving them away
Another of the common bankruptcy myths is that it is possible to keep assets safe by disposing of them before the bankruptcy order. However, if you attempt to repay a creditor and put a ‘preference’ on them above others, the trustee has the power to to obtain the payment from the beneficiary and put back into your estate in an attempt to satisfy all creditors.
If you dispose of assets and sell them at less than their market value, this is referred to as ‘transactions at an undervalue’. The payments can be set aside if the sale took place five years prior to filing for bankruptcy.
#10 Bankruptcy will ruin my future
There’s no denying that a bankruptcy order will substantially affect your ability to gain credit for a period of six years, and slightly longer as you begin to rebuild your credit file. However, where bankruptcy is the best option for you moving forward, you will find there are many lenders who solely provide advice and help the credit reports of those who have undergone bankruptcy.
If you have any queries regarding the procedure and what to expect, our business rescue experts can provide confidential, insolvency advice to help you find the best solution for your financial issues.
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Liquidation is likely to crystallise any outstanding personal guarantees, so you will need to consider carefully how to deal with these prior to liquidating. There are options available that we are happy to discuss, but it is important to understand the potential effects of the guarantees prior to liquidating.
We can organise attendance at your premises to assist with staff redundancies. There is an added charge of £350 for this (already included in your quote). We find that it can really help staff move their claims forwards, and understand the procedure better. Where possible, we work with the local Job Centre so that exiting staff are aware of training opportunities and the most efficient ways of making benefit claims.
Buying assets from the liquidator
Please contact our office or book an appointment if you want to buy assets back from the liquidator. Once we have details of your assets, we can organise independent valuers to review (either on paper or by site visit, depending on the asset types), and we can then agree a fair figure for the purchase.
It may be possible to pay for the assets over a period of time, though it is likely that security would be required.