Bankruptcy is a way of distributing a person’s assets among his creditors. The term of bankruptcy was formally 3 years, however the Enterprise Act 2002 reduced this period to automatic discharge after 12 months. At the Official Receiver’s discretion, this period can be shortened to as little as 6 months, if the bankrupt is co-operative.
A bankrupt is normally dealt with by an Official Receiver initially but the administration of the estate may later be handed over to an Insolvency Practitioner.
Restrictions in bankruptcy
A bankrupt cannot :
» Obtain credit in excess of £500 without disclosing his bankruptcy.
» Continue to trade with the same business without the consent
of his trustee and if so, must trade in the name that he was adjudged bankrupt.
» Sit as an MP or Member of the House of Lords.
» Act as a company director or be involved in the management if a limited company.
» The bankrupt may be asked to pay surplus funds out of future income to meet the bankruptcy debts. This can extend beyond discharge from bankruptcy but only for a maximum of 3 years.
» A bankruptcy restrictions order (BRO) can be obtained by the trustee for the restrictions of bankruptcy to extend past discharge. This is usually if the bankrupt commits an offence and the duration of the restriction can extend up to 15 years, depending upon its seriousness.
» The bankrupt’s home is included and will be lost unless it is classed as a ‘low value home’ where the debtor’s share of the equity is less than £1,000. However, at the end of the period 3 years from the date of bankruptcy, the equitable interest in the debtor’s home ceases to be comprised in the bankrupt’s estate and re-vests in the bankrupt if it has not been dealt with during this time. There are rights of occupation of up to 12 months where the debtor’s spouse or children reside at the home, whereby the trustee in bankruptcy cannot apply for an order of possession until the end of this period.
» Stigma and bad publicity can result, as the making of a bankruptcy order is always advertised.
Assets exempt from bankruptcy are as follows :
» Any furniture and effects or items needed, including income, to maintain basic domestic needs, in so far as these do not exceed reasonable replacement value.
» A modest motor vehicle if needed for work.
» A pension whether occupational or a personal scheme is normally exempt.
However, please be aware that a personal pension scheme may be looked at by the trustee, especially if contributions into the scheme have been high.
» Tools of the trade of the bankrupt
» Assets held in trust on behalf of another person.
» Compensation for pain and suffering.
Liabilities surviving bankruptcy
Certain categories of debt are not provable in a bankruptcy and this continues to be payable by the debtor after discharge from bankruptcy. These are:
» Student loans
» Child maintenance and CSA payments
» Penalties and fines
» Secured creditors
» Fraudulent debts
For more information and/or for a free initial meeting and confidential advice, without obligation, please call 01582 469700.