The Risk to Your Current Assets
With bankruptcy your assets (property, shares,
anything of real value or even non-essential) can be sold to pay your
creditors. This makes bankruptcy a more sensible option where you
don't have much in the way of assets. It also means declaring
bankruptcy to cope with non-priority debts puts all the debtor's
property at risk ... a strategy that would seldom be advised.
Only the property owned by the debtor is directly
at risk, jointly-owned property (such as the family home) may be sold
by the trustee to realise the value of the debtor's share.
Additionally, in bankruptcy the trustee can
investigate any gifts or undervalued sales made in the previous five
years. If the gifts or sale were made when the debtor was insolvent,
the trustee can take steps to claim the value of the gift, or
undervalued part of the goods, from the recipient.
The Risk to Your Future Assets
Where the debtor expects to receive an
inheritance or already has assets, consideration should be given to
any increase in value they may have whilst a bankruptcy order is in place.
Arranging matters so as to avoid losing out in
such circumstances may be possible (such as amending a will) but not
by transferring assets as detailed above.
The Effect on Your Future Credit
An undischarged bankrupt must declare his status
when seeking credit of more than £500, including hire purchase
and conditional sale agreements. It is an offense not to do so.
Attempting to run a business can be hampered by
being an undischarged bankrupt, since credit will be nigh on
impossible. Undischarged bankrupts are also forbidden from being
company directors, unless they obtain special leave from the court.
Whilst utility companies cannot insist on payment
of pre-bankruptcy arrears as a condition of continuing supply, they
will usually require a security deposit and insist that a pre-payment
meter is fitted.
The Effect on Your Employment or Business
There are certain jobs you cannot have if you are
an undischarged bankrupt: Company Director (or concerned directly or
indirectly in the management of a company), MP, Councillor,
Magistrate or Estate Agent. A bankrupt usually can't be a school or
college governor and there are restrictions under charity law as to
the role a bankrupt can serve on management committees.
Security firms may not wish to employ an
undicharged bankrupt, particularly where money is involved. And the
same applies to the civil service. The rules for professions such as
solicitors and accountants make it virtually impossible for people
who've been bankrupted to work in these professions.
For a sole trader the effects can be even
greater. Whilst bankruptcy does not necessarily mean the busines will
close, continuing to trade will be made more difficult:
The Effect on Your Housing
Homeowner or tenant, bankruptcy can still cause
problems. For homeowners it can limit the ability to move to another
property by reducing your ability to borrow money. It does not,
however, prevent you from exchanging local authority or housing
association property (providing local rules do not prohibit this).
For tenants, the inability to borrow can make it
difficult to raise the deposit and/or the advance rental payments.
The Effect on Your Reputation and Stress
The process of declaring bankruptcy can be very stressful.
When declaring bankruptcy, it is possible that
there may be a public examination of financial affairs and conduct of
the debtor in open court. Though this only happens when there has
been a failure to co-operate with the Official Receiver or if it is
requested by 50% of the creditors.
An advertisement will be published in a local
paper notifying of a person's bankruptcy and inviting claims from
ceditors. The details can also online at a Public Register maintained
by the Insolvency Service.
For many there is still a stigma attached to
declaring bankruptcy and debtors can be made to feel like criminals,
though they most certainly are not.
Do You Have the Resources?
Just like an IVA,
there are large expenses racked up when declaring bankruptcy with
court and insolvency service fees applied.
Additionally, a charge of 15% will be levied on
all sums received by the Official Receiver/trustee. This is paid out
of the debtor's assets.