Bankruptcy and Personal Debt Advice

Bankruptcy tends to be unfairly thought of as financial failure and people wrongly assume they will lose everything including their home, car and possessions. This is not necessarily true, in reality bankruptcy can provide legitimate relief from debts incurred by those who are in genuine financial difficulty and in many instances, if advice is sought early, the family home and other assets can be safeguarded.

Here at Oakdale, we advise bankruptcy 60% of the time when advising individuals. In the majority of those cases, the bankrupt owns property, and if it has been their wish to keep that property, they have. The regime was made a lot fairer on the bankrupt in 2002, with the introduction of the Enterprise Act. The standard term of bankruptcy was reduced from three years to one year. Changes in the way the bankrupt’s family home is treated were introduced making it easier for them to retain ownership.

There have been further changes over the years, making bankruptcy that little bit more “user friendly” and drawing it away from the draconian image it had and still does have with lots of older people.

Either the debtor (the person owing the money) or a creditor (the entity owed the money) can instigate the bankruptcy process. When a debtor does, the process is now started online. Up until April 2016 the debtor had to go to court. If a creditor instigates the process, then it will still be handled by the courts.

Once a bankruptcy order has been made, the bankrupt’s estate (assets and liabilities) then come under the control of the official receiver. They are an officer of the court, and they head up the government department that administers bankruptcies. That department is called the Insolvency Service and each major area has an office.

The official receiver or an employee of theirs will look to interview the bankrupt either in person or over the telephone; it will depend on the complexities of the case. It is their job to establish what led to the bankruptcy, they will look to identify if there has been any wrongdoing by the bankrupt and it is their role to also establish whether the bankrupt has any assets that can be turned into cash.

At Oakdale, we only take people through the bankruptcy process if we and the bankrupt are comfortable with the risks. The main risk usually surrounds the family home however if there is a friend or family member who can help out in this regard, by being able to offer an amount of money equal to the bankrupt’s share of the equity, then the risk can be addressed.

There are certain restrictions in place whilst bankrupt, which will be for one year. Once the year is up and the bankrupt is discharged, the restrictions are lifted, and they are free to do as they wish.

• Debts are written off, with certain exceptions (explained below)
• Creditors can’t take further action unless the debts are secured on your home or other property
• It allows you to make a fresh start after only a year
• You may be able to avoid having to sell your home if your spouse, partner or a relative can buy your share of its equity (value after any debts secured on it have been paid)
• HMRC approved pension schemes are exempt from your bankruptcy
• Household goods and furniture are exempt from your bankruptcy
• You can have a basic bank account

• Your bankruptcy is entered on a public register and is advertised in the London Gazette
• If you apply to make yourself bankrupt, you will have to pay a fee of £680.00
• You will remain liable to pay certain debts – in particular, student loans, court fines, debts arising from family proceedings, budgeting loans and crisis loans owed to the Social Fund
• Any business you have may be closed down. Each business is viewed on its individual merit by the Official Receiver. If you’re self-employed as a sole trader, you can usually continue to trade. If you are a company director or have recently been one the company is not affected
• Your employment may be affected. In most cases, it won’t. However, it usually will if you are employed in a role that involves financial matters, such as working in a bank or within the gambling industry
• Certain professionals that require you to be licensed or registered can be barred from practising if they are made bankrupt
• You can’t act as a director of a company or be involved in its management unless the court agrees
• You will be committing an offence if you obtain credit of £500 or more without disclosing that you are bankrupt
• You may have a bankruptcy restrictions order made against you for 2 to 15 years if you acted irresponsibly, recklessly or dishonestly
• If the Official Receiver applies for a bankruptcy restrictions order to be made against you, the restrictions will be similar to those in force while a person is bankrupt
• Once a bankruptcy order is made it would remain on your credit files for 6 years, and it is unlikely that you will be able to obtain credit during that period

There are certain typical factors that determine whether bankruptcy is the right advice. The value of an individual’s assets, typically the equity in their house or houses or the value of shares in their company will determine whether it is feasible.

Other factors will be the level of debt the individual has. If it is less than £20,000 and they don’t own a property or have a disposable income then a Debt Relief Order (DRO) may be appropriate.

There are many other areas that need to be looked at to determine the right course of action. At Oakdale we carry out a detailed telephone fact find followed by a face to face consultation whereby we look at not only the current financial position but also the debtor’s plans and aspirations for the future, their attitude to risk and any changes that may be on the horizon that can affect the advice.

We encourage a spouse, family member or friend to come along to these consultations as we appreciate it can be a very stressful time and we find it helps if the debtor has somebody else hear our advice. In most instances, we can make a recommendation what the debtor should do and why at the end of such meetings.