Over the past decade, the number of individuals who have filed for bankruptcy in the United Kingdom has skyrocketed. In 2000, 21,550 people filed for bankruptcy in the UK while 74,670 individuals filed for bankruptcy in 2009. Bankruptcy is a legal option available for those struggling with debt to seek debt relief, and it also provides creditors with the ability to force you to repay your debts owed to them. Bankruptcy is governed by the Insolvency Act 1986 and the Insolvency Rules 1986. It is important to note that this is a legal option available only to individuals and not to businesses. If you are struggling with personal debt, you may consider reviewing the benefits and risks as well as the process associated with filing for bankruptcy before you pursue this option for personal debt relief.
What Is Bankruptcy?
There are several ways to deal with mounting debts and financial struggles, but only bankruptcy provides you with some legal protection under the law. It is important to note that bankruptcy must be filed through the legal system. Once your bankruptcy is filed, the courts will be able to seize your assets and may use those assets to repay your creditors for the amount owed. This includes the seizure of your furnishings, your vehicles, your home and other real estate, your liquid assets in your bank accounts and other assets. During the bankruptcy process, you will be forced to live within certain financial restrictions mandated by the courts. After a period of time, your bankruptcy will be discharged, and you may be freed from other outstanding debts that were not paid during the bankruptcy. However, there are caveats to this that should be explored in greater detail.
Who Can File for Bankruptcy?
You may file for bankruptcy voluntarily, and many who do file for bankruptcy voluntarily do so with the assistance of a bankruptcy attorney. Paperwork will need to be filed with the courts before the bankruptcy process can begin. However, you should be aware that your creditors may also petition the court and force you into bankruptcy. In order for your creditors to force you into bankruptcy, you must be at least 750 euros in debt to them. Filing for bankruptcy involves following certain procedural steps that include paying legal fees and filing paperwork to petition the court for bankruptcy.
How Bankruptcy Works
Once the paperwork has been submitted to petition the court for bankruptcy, either through your own voluntary effort or through the effort of one of your creditors, a trustee will be appointed to your case. A trustee essentially will manage your finances during the bankruptcy. If you are forced into bankruptcy by your creditors, the court will appoint a trustee, and you will have no role in selecting the trustee. This individual, typically referred to us an Official Receiver, is tasked with investigating your finances and managing your finances until the court issues a discharge of bankruptcy. The Official Receiver is an officer of the court and is not a personal legal representative working on your behalf to represent your rights. In fact, one of their roles is to protect your assets during the bankruptcy to ensure that your creditors obtain the full amount owed to them. In addition, this officer of the court also is responsible for selling your assets, if required by the court, to pay your creditors and in filing a report regarding the reason for your financial distress. You should be aware that all bankruptcies are typically reported in the London Gazette to provide public notice to others about your financial issues.
How Bankruptcy Affects Your Assets
Once you enter into bankruptcy, the fate of your assets will rest with the courts and, more specifically, with the trustee appointed to your case. One of the key results of bankruptcy is the liquidation of most or all of your assets. As assets are liquidated and converted to cash, the cash will be used to repay your creditors. This means that your home, cars and other assets will likely be sold. All antiques, furnishings and more that you own may also be sold. Your trustee is responsible for determining which items are sold and for negotiating a fair price for those items. You essentially relinquish control of your items when in bankruptcy.
While You Are In Bankruptcy
If your assets are limited, you may believe that you have little to lose by filing for bankruptcy in the United Kingdom or by being forced into bankruptcy by your creditors. However, it is important to note that the court will take over full control of your finances while you are in bankruptcy. This means that all aspects of your budget may be reviewed, and you may be forced to live a drastically reduced quality of life compared to the life you led before you filed for bankruptcy. If one reason for your financial struggles related to your inability to adjust your lifestyle and live beneath your means, you should be aware that the court will dictate your quality of life while in bankruptcy. In addition, the court may garnish your wages to obtain further money to repay your creditors. Regardless of your level of income, your quality of life and lifestyle will be dictated by the court while you are in bankruptcy.
Furthermore, you should be aware that there may be additional restrictions placed on you while you are in bankruptcy. For example, you may not be permitted to borrow more than 500 euros without disclosing to your potential creditor that you are in bankruptcy. You are also not permitted to make payments to your creditors. The exception here is that you are still responsible for paying your own student loans and court fines. These are not included in a bankruptcy and cannot be discharged. Your business actions may also be limited. For example, you may be forced to close your own business and dismiss your employees. You also may not be permitted to manage another business without notifying the business owners that you are involved in bankruptcy. Additional job restrictions forbid you to work as a trustee for a charitable organization, as a solicitor or for the Financial Services Authority. If you fail to abide by these restrictions, you may be charged with a criminal offence and face additional legal issues.
Future Effects of Bankruptcy on Your Life
A typical bankruptcy may last for approximately 12 months, but the effects of bankruptcy on your life may be far-reaching. Consider, for example, that most or all of your assets may be liquidated and used to repay the debts you owe to your creditors. After your bankruptcy is discharged by the courts, you may be left with little or no assets to your name. In addition, a bankruptcy will appear on your credit report for up to six years. This means that any time you apply for credit and your credit references are reviewed, lenders will know that you experienced bankruptcy in the past. Furthermore, this can affect your credit rating, and this ultimately can affect the interest rate that is extended to you if you are approved for credit. As a final note, consider that even after bankruptcy is discharged, your wages may still be garnished for up to three years afterward. This can limit your ability to rebuild your life after bankruptcy has been discharged.
In The Event of Fraud or Criminal Actions
As mentioned earlier, the trustee who is appointed to your bankruptcy case will conduct a thorough financial investigation. When you initially file for bankruptcy or are forced into bankruptcy, you will meet with your trustee during a scheduled interview, and you are required to hand over all of your financial records. The trustee will use this information to begin an investigation into your finances. In the event fraud or other criminal activities are found during the investigation, the effects of bankruptcy may be more long term. Depending on the circumstances, you may face criminal charges. Furthermore, it is possible for the court to impose bankruptcy restrictions described earlier for up to 15 years after the bankruptcy discharge date.
Early Discharge of Bankruptcy
While many bankruptcies will take up to 12 months to discharge, it is possible for your bankruptcy to be discharged earlier. The trustee for your case often will review your case again after about five months. Your creditors may be given the right to object to an early discharge of your bankruptcy. If there are no objections for an early discharge by your creditors, it is possible for the discharge to be completed early. You will be notified of an early discharge through the courts. This notice will be provided to you in written form through a stamped copy of an early discharge notice. While the process of an early discharge may begin around five months, most early discharges will not be completed prior to six months of your bankruptcy declaration date. You should be aware that you will not receive a stamped notice of an early discharge with an automatic discharge of bankruptcy.
Strategies to Avoid Bankruptcy
During bankruptcy, your creditors are no longer legally able to contact you regarding payment for your debt. They will only be able to contact your trustee regarding repayment of your debt. If you have been struggling with your debts and regularly receive calls and letters from your creditors regarding payment, filing for bankruptcy can ease the stress of your financial situation considerably. However, because you lose all control of your assets, income, spending habits and even employment options in some cases, you may want to avoid bankruptcy if possibly. Before you consider filing for bankruptcy, you may consider alternative debt management options. For example, many consumers may benefit by consolidating their debts with a home equity loan or a low interest personal loan. You may also make your own lifestyle adjustments on a voluntary basis, such as those that the court may mandate. This may help you to repay your debts more easily on your own.
Tens of thousands of individuals in the United Kingdom will file for bankruptcy this year either through their own effort or due to the initiative of their creditors. It is important to understand the bankruptcy process, its benefits and its drawbacks in detail before you experience bankruptcy. If necessary, consult with a bankruptcy attorney to explore the ramifications of bankruptcy in more detail. If possible, bankruptcy should be avoided as it can have long-term, far-reaching effects on your life.