Article by
Professor Mark
Watson-Gandy
K.S.G
13 Old Square
Chambers
CREDIT CRUNCHED: BANKRUPTCY
I’ve been a bad girl. I blitzed my credit cards at Christmas and in the sales and I can’t pay. I’ve just had a letter threatening to make me bankrupt. If they go ahead does that mean I’ll be bankrupt forever?
Not at all. You get an automatic discharge from bankruptcy after 12 months but it could be less if the Official Receiver does not think an investigation of your affairs is necessary or has finished his investigation (for example if you don’t have much by way of assets).
What happens when I go bankrupt?
A bankruptcy order places your assets, income and liabilities under the control of the Official Receiver. He will use this to pay off as much as possible towards the debts you owe.
So what happens to my debts if there isn’t enough money left over to cover them?
Any debts the Official Receiver has not repaid out of the money he has recovered cease to be payable after a fixed period.
Ooh. That sounds promising. I’ve still got a student loan – do I get a clean slate on that too?
This problem rather worried the government. They changed the law to ensure that student loans don’t get extinguished.
What about if the bailiffs come round?
One upside is that you get the debt collectors out of your hair. They have to deal with the Official Receiver.
But the Official Receiver can take my car and television and stuff?
Not necessarily. The Official Receiver certainly must sell any significant items of value. He will leave alone clothes, furniture and household equipment that you need to meet your basic domestic needs. Thus your television set which would have been seized by the bailiffs would probably be left alone by the Official Receiver. If you need a car to work, you will probably be allowed to keep but you may have to down size.
What about my computer and equipment I need for my work?
Any tools, books or equipment which is necessary for your personal use in any employment or business will be left alone by the Official Receiver.
What about my wages?
The Official Receiver takes any excess of income but only after deduction of your and your family’s living expenses.
What happens to my home?
This is the main downside with bankruptcy. If you own your home you are likely to lose it. Your home (or your share in it) passes to the Official Receiver on his appointment. He can apply to the court for an order for possession and sale. The court can make such order as it thinks just and reasonable having regard to the interests of the creditors, to your financial resources, to the needs of the children and to all the circumstances of the case other than your needs.
Well that seems fair, doesn’t it?
It’s not the complete picture. By waiting a year before bringing the application the Official Receiver is able to rely on section 337(6), Insolvency Act 1986. This provides that after a year the Court assumes that, unless the circumstances are exceptional, that the interest of the bankrupt’s creditors outweigh all other considerations.
But the court will take account of the hardship to my family though?
Yes but it would need to be something pretty exceptional. The fact that the bankrupt’s family will suffer a degree of hardship is normally not enough to constitute “exceptional circumstances”.
But my partner can buy out my share?
Yes and it is sensible to do so. Timing is key given that house prices appear to be falling. The price is usually the current market share at the time you make the offer.
How does the Official Receiver get to know about what I own?
You have to provide him with a list of your assets. It is a criminal offence if you do not co-operate or make a false statement.
What if I give my assets away before I go bankrupt?
Not a good idea. It is a criminal offence to try and defeat the bankruptcy process by transferring, giving away or concealing your property. In any event the Official Receiver will investigate your affairs and can set aside any gift or transaction that has been made for less than its true value up 5 years before the bankruptcy order.
Any other things I need to watch out for?
Yes. The main ones to flag are
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Any inheritance or award of damages during the period of the bankruptcy will belong to the Official Receiver (and indeed so any damages you get from most types of court cases you had before or during the bankruptcy).
- Your bank accounts will be frozen and then closed and you will find it difficult to get credit.
- Whilst you are bankrupt you are disqualified from certain jobs like being a company director or a solicitor or accountant.
- You mustn’t try to leave the country with more than £1000.
- You mustn’t try to obtain credit for more than £500 whilst you are bankrupt.
signet rings, naff or not?
Is it naff to wear a signet ring?
Not at all.
It is a quite stylish and understated bit of jewellery which both men and women can wear
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