Bankruptcy FAQs

1. In bankruptcy which of my assets am I allowed to keep?
When you are made bankrupt all of the property that belongs to you at the date of the bankruptcy order will be classed as part of your estate. There are certain important exceptions to this which are set out below:-

a) You will be allowed to keep such tools, books, vehicles and equipment as you require for your personal use in any employment, business or vocation.

b) In addition you are allowed to keep such clothing, bedding, furniture, household equipment and provisions as are necessary to satisfy the basic domestic needs of yourself and your family.

What this means in practise is, that unless you have exceptionally valuable items of furniture, jewellery or excess equipment in whatever your trade or profession is, you will be allowed to keep most things.

2. What about my home?
If you are in rented accommodation then you do not "own" your home. The Official Receiver/Trustee will be unable to do anything. In most circumstances, if you continue to pay the rent you will be allowed, by your landlord, to continue to occupy the property.

If you own your own home, the Official Receiver/Trustee will seek to establish whether or not there is any equity in the property. That is the difference between what you owe to a bank/building society and what the house is worth. If there is no equity in the property there is nothing for the Official Receiver/Trustee to realise. If there is equity in the property the Official Receiver/Trustee will usually try and establish if the bankrupt or his or her spouse would wish to purchase the Official Receiver/Trustee's interest.

Please remember that it is important that you take steps to deal with your property as soon as possible, even if there is no equity, as it is possible that your home will increase in value during the 3 years that the Trustee has to deal with the property.

Ultimately, if no agreement can be reached between the Official Receiver/Trustee and the bankrupt concerning the property, the Official Receiver/Trustee can, after 12 months, seek an order from the court for the sale of the property.

The property must be dealt with by the Official Receiver/Trustee within 3 years of the date of the bankruptcy. If not, then the ownership will revert back to you.

3. What about my motor vehicle?
The Official Receiver/Trustee will seek to establish whether or not the vehicle is on any form of finance, or whether you own it outright. Much will depend on what use the vehicle is put to. If it is used by you in your business then you should be allowed to keep it. If the vehicle is considered to be of “excess value” [it is worth a few thousand pounds] the Official Receiver/Trustee may require it to be sold and replace it with a more suitable vehicle. Thus it will be very difficult for you to justify keeping a brand new van worth £10,000, if it could be sold and replaced with a second-hand vehicle worth £2,000/£3,000.

4. I am self-employed, with a business employing three people. What will happen to; the employees; the business?
In most instances, as soon as you have been made bankrupt, the Official Receiver is forwarded your details. It is unusual for the Official Receiver to run a business and in most instances he will take steps to close the business down and dismiss the employees.

5. I am self-employed, what will happen if I am made bankrupt? I have no employees.
The insolvency legislation is designed to protect creditors but not prevent an individual from making a living. You will find that you are placed under certain restrictions but essentially you can continue to trade and you will be able to keep your tools of trade.

6. What restrictions will apply to me?
There are a number of restrictions that apply to all undischarged bankrupts. Two major ones are that:-

You cannot incur credit in excess of £500 without first informing the company/individual concerned that you are an undischarged bankrupt. If, once you have told them this, they choose to grant you credit in excess of £500, that is up to them. If you act contrary to this provision you are guilty of an offence.

You cannot be engaged in a business under a name other than that in which you were adjudged bankrupt without disclosing to all persons with whom you enter into any contract, the name in which you were adjudged bankrupt.

7. Can I be a Company Director, after I have been made bankrupt?
No. There is a ban, unless you obtain leave of the court, from an undischarged bankrupt being involved in the formation, management, running of a company or being a director of a company. If you are already a director of a Company you should resign immediately.

8. Will my bankruptcy be publicised?
Yes. An advert will appear in your local newspaper from the Official Receiver.

9. Is there any way of getting out of bankruptcy early?
Yes. There is a procedure known as annulment, whereby in certain circumstances the Bankruptcy Order is annulled and treated as thought it had never happened. There are two circumstances in which this occurs:-

1. If you can show that the Bankruptcy Order ought never to have been made in the first place.

2. Where you or a third party on your behalf, have paid all of the creditors in full [including statutory interest], together with the costs of the bankruptcy, or provided security of sufficient value to cover all of these sums.

In addition there is a mechanism called an Individual Voluntary Arrangement (“IVA”) by which it is possible, if your creditors approve the IVA, to seek an annulment of the Bankruptcy Order. We have assisted many people to get out of bankruptcy by this route.

10. Will I be allowed to keep my income?
Under the insolvency legislation, the Official Receiver/Trustee can seek an Income Payments Order from you. By this they will seek to obtain any surplus income you have, after taking into account the “reasonable domestic needs of the bankrupt and his family.” You will be required to provide the Official Receiver/Trustee with details of your income and expenditure and from this they will work out whether or not you can afford to make income payments. In the first instance you will be asked to agree such payments (Income Payments Agreement). If however an agreement cannot be reached, an application will be made to the court for an Order requiring payments. It is possible for the Official Receiver/Trustee to enforce such an Order by seeking the payments direct from your employer (Income Payments Order).

11. Who is the Official Receiver?
He is both a civil servant employed in the Insolvency Services [part of the Department of Trade and Industry] and an officer of the Court who deals with bankruptcy and corporate insolvency. The Official Receiver has a duty to investigate the conduct and affairs of every bankrupt and to make a report, if he considers it necessary, to the Court.

12. Who is the Trustee in Bankruptcy?
Where it becomes apparent to the Official Receiver that the bankrupt’s estate has assets in it, whether cash or other property, the Official Receiver will usually seek to call a meeting of creditors to vote for the appointment of a Trustee. He can ask the Secretary of State to appoint a local Insolvency Practitioner to act as Trustee where it is important to act quickly to protect assets. Once appointed the bankrupt’s estate vests in the Trustee.

13. How long does the bankruptcy last?
You will usually be discharged after 12-months. However, this may vary dependent on whether or not the Official Receiver believes you have failed to co-operate with him. If the Official Receiver believes you have been dishonest before or during the bankruptcy he may apply to the court of a Bankruptcy Restriction Order which may last for between 2 and 15 years.

14. I gave away my share in our house to my spouse. Can the Official Receiver/Trustee do anything about this?
A Trustee in Bankruptcy has powers to investigate and look to overturn prior transactions if they fall foul of the insolvency legislation. Any substantial assets that have been given to family members within the five years preceding bankruptcy are susceptible to challenge.

15. How will bankruptcy affect my credit rating?
The credit agencies should pick up on the fact that you have been made bankrupt. This will make it extremely difficult for you to obtain credit. You will find that banks will only allow you to operate a credit account.

16. Do I have to visit the Official Receiver’s Office?
Possibly. You are required to attend the Official Receiver’s Office and provide him with information concerning your financial affairs. Some Official Receiver’s offices deal with the initial interview by telephone. There is a detailed questionnaire to complete. The Official Receiver will require that you hand over details of all your assets and what you owe, bank statements and if you are self-employed, your business records.

17. What happens if I don’t co-operate with the Official Receiver/Trustee?
A bankrupt is under a statutory obligation to co-operate with the Official Receiver or his Trustee. If you do not, there are powers available to the Official Receiver / Trustee ultimately to have you arrested and brought before the Court. In addition the bankrupt's discharge maybe suspended until the bankrupt cooperates with the Official Receiver / Trustee.