Bankruptcy Debt Solution

What is Bankruptcy?

People often think that bankruptcy is carried out by companies. However, this is not the case. Bankruptcy is used for resolving personal insolvency problems.

Bankruptcy is generally used as a last resort for dealing with personal insolvency when there is little hope of repaying any of the debt. An application for bankruptcy is made at the local county court. If granted, then all of the individual's debts are taken away from them.

The individual is usually bankrupt for 12 months. During this time, they are not able to act as a company director. Their assets are reviewed and anything of value may be sold to try and repay creditors. This does not include normal household items or tools of a trade. However, it would include a property with equity in it or a car valued at more than £1500.

If a person is declared bankrupt and they can afford to do so, they will be asked to make monthly payments towards their debt for up to three years.

Who Should Use Bankruptcy?

Bankruptcy is a serious matter. Before deciding to declare bankruptcy you should take advice from an insolvency experts such as Cooper Matthews.

Directors

You cannot continue to hold your position as a director of a limited company or be involved in the management of a limited company if you are bankrupt. As such if you want to remain in this position, then bankruptcy is not an option for you.

However, if your business has failed, you no longer need to be a director and you have no way of repaying the debts that you owe, bankruptcy could be an option.

Sole Traders

You can continue to act as a self employed sole trader if you declare bankruptcy. As such, if you are unsure of your future income and do not believe that you can make any payments towards your creditors, bankruptcy might be a sensible option. However, this decision will also be effected by factors such as whether you own a home with equity in it.

If you have any assets which you use as tools for your trade (for example tools and a van), you will be allowed to keep these in bankruptcy so that you can continue to earn a living.

Note: The suitability of Bankruptcy to resolve a debt problem caused by business failure will always depend on the individual's circumstances. Before deciding that Bankruptcy is right for you, you must take professional advice.

Why not call Cooper Matthews today for an informal discussion?

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What debt can be included in Bankruptcy?

Where bankruptcy is undertaken, all creditors must be treated in the same way. There can be no creditors who are treated preferentially and as such, all debts in an individual's name must be included. Here is a list of the type of debts which must be included in Bankruptcy:

• Bank Loans
• Bank Overdrafts
• Credit Cards
• Store Cards
• County Court Judgements
• Trade Creditors
• Inland Revenue Debt
• VAT Debt

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How does Bankruptcy Work?

You do not need professional help to declare yourself bankrupt. However where you have been a company director or involved in the running of a business, it is certainly sensible to take the advice of an insolvency expert.

The most important part of the bankruptcy process is the correct completion of the application forms. These forms are complex. The statement of affairs document is 30 pages long and if you make false statements, or don't record all the correct information about your property, this is a criminal offence and you could be fined or sent to prison.

The forms must be completed properly and therefore many people seek the advice of an expert to help them with this task.

The steps you will need to undertake to declare yourself bankrupt are described below:

Step 1: Identify your Local Country Court

If you decide to go bankrupt, you will have to do this at your local county court (this will usually be the county court in the area where you have lived for the last six months. If you live in central London, it is the High Court). As such, the first thing to do is find out where this is. You can do this by using the court finder tool on the following site: http://www.hmcourts-service.gov.uk/HMCSCourtFinder/

Step 2: Complete an Application Form

Once you have identified your local court, you will then need to complete an application form. This includes two documents: A Bankruptcy Petition form (form 6.27) and a Statement of Affairs form (form 6.28). You can get copies of these forms from your local court, or from the Insolvency Service website (http://www.insolvency.gov.uk/forms/forms.htm). You can also fill in the forms online using this website.

Step 3: Present your completed Application Form to the Court

Take the forms and your fee to the court. You will first have to sign a sworn statement to the court you have told the truth in the forms. Once you have sworn your forms, the court will normally hear your case straight away. You may have to attend the hearing with a county court judge. This is done in private.

Given that your application form has been completed properly and no problems are uncovered, you will be declared bankrupt on the same day.

Note: Once the bankruptcy order is made, all your bank and building society accounts will be frozen. You will need to make arrangements to open a new bank account after you have declared bankruptcy.

Step 4: Meeting the Official Receiver

The Official Receiver will arrange an interview with you. This will normally be a couple of weeks after you have been declared bankrupt. The Official Receiver will tell your creditors about the bankruptcy, and send them a report with a summary of your financial situation. If you have any valuable assets which the Official Receiver believes should be sold, he or she will organise this.

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The Advantages of Bankruptcy

As has been highlighted already, bankruptcy is not suitable if you wish to continue to act as a director of a limited company. However, where this is not the case, there are a number of advantages of declaring bankruptcy:

• If you declare bankruptcy you can continue to run a business as a sole trader.
• The responsibility for paying all of your debts existing at the time you are declared bankrupt is taken away from you.
• You will be allowed to keep reasonable household items and the tools of your trade.
• Creditors have to stop most types of court action they have been using against you to get their money back.
• You will normally be Bankrupt for just 12 months. After that period you will be discharged and make a fresh start. You can take up a company directorship after discharge if you want to.
• If you can afford to do so, you will have to make monthly payments towards your debt for 3 years. However, after these payments are completed, any outstanding debt will be written off by law.

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The Disadvantages of Bankruptcy

Although there are some advantages, declaring bankruptcy is a serious matter. There are some disadvantages which many or many not affect you depending on your circumstances. As such, it is vital to get professional advice before choosing to declare bankruptcy.

• You cannot continue to act as a company director or be involved in the management of a limited company while you are bankrupt.
• Bankruptcy is not private. If you are declared bankrupt, your name and address will be published in your local newspaper which anyone can read. Your name will also appear in the insolvency register.
• Some of your debts will not be written off when you declare bankruptcy such as court fines. You will still have to pay for these even after you are discharged from bankruptcy.
• While you are bankrupt, you can not apply for more credit.
• The record of your bankruptcy remains on your credit file for 6 years meaning it will be difficult to obtain further credit during this time. However, in reality many people are able to borrow again within this period, particularly for a mortgage.
• If you are a home owner, you will have to give up your share of any equity you have in it. This may result in the sale of the property unless a friend or family member can raise a similar sum on your behalf which can be given to the Court in lieu of your equity.
• Some of your possessions might have to be sold, for example, you may lose your car if it is worth more than £1500 and any luxury items you own.

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What will Bankruptcy Cost?

When you declare bankruptcy, you will have to pay a fee. The fee is generally £490/person made up of a Court Fee of £160 and a fee towards the cost of the administration of your bankruptcy of £330. If you claim certain benefits such as income support, you may be exempt from the Court Fee. When you are speaking to the Court, you should confirm the exact charge and if you are eligible to apply for a discount.

If you require additional advice and help to complete your application forms, you must also expect an additional charge for this service.

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