Bankruptcy

More than 62,000 individuals applied for protection from creditors via a Personal Bankruptcy during 2006, the largest number since records began and this is forecast to go even higher in 2007. However there are options short of bankruptcy which could help you avoid such drastic action.

It is inevitable that as the Banks and other financial institutions have relaxed lending restrictions many more people are finding themselves with major debt problems. There are now approximately 1600 different branded credit cards in the UK all competing for your business! This huge increase in credit has led to the insolvency problems UK consumers’ face today.

For an increasing number of people bankruptcy is now being seen as the only way out. Even now for those consumers contemplating trying to enter into an IVA, the banks are now starting to reject IVA cases which would have been approved a number of years ago and so bankruptcy will become an even bigger percentage during 2007.

However, if you are contemplating this drastic step then please seek some specialist advice to ensure it is the most appropriate financial option for you. Financial Guardian is part of a Group of Companies which is fully authorised to provide you with a whole range of refinancing and consolidation options. Whether you are homeowner or tenant; self employed or PAYE, there may well be a better option other than bankruptcy. Call us today without obligation, to determine whether you have another way out of your financial predicament.

What is bankruptcy?

Personal Bankruptcy is the mechanism by which a UK consumer or Sole Trader/informal partnership business, with major and irresolvable debt problems, can ask the County Court to provide legal protection from creditors while the debtor’s financial affairs are sorted out.

Likewise, any creditor owed money (more than £750) can ask the same Court to declare a debtor bankrupt and recover available assets to pay off such debts.

Bankruptcy is designed to provide a debtor with a legal mechanism which will allow him to make a fresh start to his/her financial life by wiping the slate clean. However, there are a number of issues which all debtors need to be aware of before any such drastic steps are taken.

Bankruptcy Legislation

The current legislation on bankruptcy is found in The Enterprise Act 2002; the provisions relating to personal bankruptcy being finally brought into law from 1st April 2004.

The main provisions are:

All first time, non fault, personal bankruptcies shall now only last for a maximum of 12 months before the debtor is formally discharged.

The debtor may additionally be issued with an Income Payments Order (IPO) asking them to make monthly payments from their disposable income to help discharge the debts. An IPO can last for up to 36 months.

In exceptional cases (approx 2% of bankruptcies) the debtor may also be issued with a Bankruptcy Restriction Order (BRO) which limits his/her ability to obtain further credit if the debtor has been reckless in previous borrowing. A BRO can last for up to 15 years.

The Official Receiver or an Insolvency Practitioner (appointed by the Court to administer the bankruptcy) has up to 3 years in which to dispose of any of the debtors major assets (usually the home) to help repay creditors.

For further information of the legal aspects of bankruptcy you may wish to look at the Government Insolvency Service Web site.

Advantages of Bankruptcy

The debtor will immediately become protected by the Court from all creditors’ debt recovery actions, including County Court Judgments and Statutory Demands

The Court appoints someone, either the Official Receiver or a nominee, to "step into the debtors` shoes" and deal with all the financial affairs on their behalf

Once the bankruptcy is officially discharged, after 12 months in most cases, most of the debts will be written off and the debtor can start afresh.

Disadvantages of Bankruptcy

Bankruptcy Orders are still announced in the local press where the debtor is resident.

The debtor may remain under restriction through an Income Payments Order for significantly longer than 12 months.

If the debtor has assets – family home; an expensive car; valuable possessions; (even if they are jointly owned with a partner or other party) they may have to be sold to help discharge your debts.

A Bankruptcy Court Order legally overrides any attempts to give away interests in property to third parties unless a fair market value is paid (you cannot simply transfer the marital home across to your partner in contemplation of applying for bankruptcy at a future date).

Any entitlement to future assets could be caught within the terms of a bankruptcy (bequests in wills or an increase in future earning capacity could potentially be forfeited for the benefit of your creditors)

You will have to pay an upfront fee to apply for your own bankruptcy. The fee varies depending upon individuals circumstances but is currently a maximum of £460.

You may find it very difficult to obtain a bank account up to your discharge.

You will not be able to work in certain professional capacities or act as a director of a Limited liability company. Nor you will have to disclose your bankruptcy when applying for certain jobs for a period of time after the bankruptcy.

If you are renting then your property landlord may need to be informed depending upon the terms of your tenancy agreement.

If you would like some more information on how you can avoid bankruptcy, gain complete freedom from debt and finally consolidate your debt problems then please call us on 0800 043 50 43 or complete our enquiry form and let us advise you properly.

For additional information on Bankruptcy please look at our specially designed information web site www.avoidbankruptcy.co.uk