Bankruptcy Issues

Advantages and disadvantages of bankruptcy

Please find below the main advantages and disadvantages of bankruptcy and the issues you may encounter:

Disadvantages

You may declare yourself bankrupt by attending at court and filing your own bankruptcy petition. You will be required to pay a deposit (currently £370) towards the costs of the petition and order. You will also be required to complete a statement as to your affairs. Alternatively a creditor may present a petition for a bankruptcy order against you. Unless either the Official Receiver or the trustee of your bankruptcy estate make an application to the court for the suspension of the date of your discharge, you will be discharged from bankruptcy on the first anniversary of the date of the bankruptcy order.

Your ability to obtain credit in the future will be restricted. If you apply to obtain credit greater than £250, you must declare to the prospective lender that you are an undischarged bankrupt. This applies to any applications for banking facilities, goods subject to a hire purchase/conditional sale agreement and all other transactions where credit is requested or may be requested. Your ability to obtain credit following your discharge from bankruptcy may also be affected.
You will lose control of your assets as your interest in these will automatically transfer to (“vest in”) your trustee in bankruptcy. This will currently include any interest you may have in a property. Any property which has been transferred to an associated party within the five year period prior to a bankruptcy order, or payments made to “associates” within 2 years of a bankruptcy order, may also be recovered as an asset in the bankruptcy estate. You will have a duty to provide an inventory of your assets and deliver these up to the trustee of your bankruptcy estate.
You must co-operate with the court, attend at creditors meetings, notify the trustee within 21 days of any windfalls or increases in income, attend private or public examinations before the court if required by the trustee.
Dependent upon the levels of your income and expenditure, the trustee may make an application for an Income Payments Order against you. If an Income Payments Order is made by the court, you will be required to make monthly payments at least until you receive your discharge from bankruptcy, but possible for a period of up to 3 years.
You will automatically be disqualified from acting as a director, or directly or indirectly taking part in the promotion, formation or management of any company, except with leave of the court.
You may not act as a chartered accountant, solicitor, MP, sit in the House of Lords, or act as an Insolvency Practitioner.
There is a potential liability for bankruptcy offences. I.e. gambling, failure to keep and preserve accounting records.
The Bankruptcy Order is advertised in the London Gazette and a local newspaper. The appointment of a trustee may be advertised in a local newspaper.

Advantages

Relative peace of mind and a conclusion to outstanding liabilities.
Court has the power to stay all legal proceedings against you.
Income contributions required under an income payments order may be lower than those required by creditors in a voluntary arrangement.

The right course of action for you, whether it is bankruptcy, an IVA or debt management, will depend on your personal circumstances. An IVA is not appropriate for everyone and it may be that bankruptcy proceedings are more appropriate.

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