Qs & As FOR INDIVIDUALS

1. What is bankruptcy?
2. So bankruptcy still has very serious implications?
3. What assets would I stand to lose?
4. So I could lose my home?
5. How long does this period of being a bankrupt last?
6. Do other people have to know that I’m a bankrupt?
7. Individual Voluntary Arrangements FAQs

1. What is bankruptcy?

Bankruptcy is a legal procedure where you are deemed unable to pay your debts as they fall due. The procedure can be instigated by your creditors, but is often instigated by the bankrupt themselves. It means that, for a period usually lasting 12 months, you cannot be a director or involved in the financial management of a company without the leave of the court and you cannot incur more than £500 of credit without informing the lender that you are a bankrupt. There are also a number of jobs which are barred to a bankrupt. Whatever your job, it’s important to look at your contract of employment because increasingly these include a clause giving your employer the option of making you redundant should you be declared a bankrupt.

2. So bankruptcy still has very serious implications?

It can have serious implications for a lot of people and it’s important to think carefully before going into bankruptcy. It isn’t necessarily as easy as the media hype would have you believe.

3. What assets would I stand to lose?

When you become bankrupt, a Trustee in Bankruptcy is appointed to determine which of your assets are eligible to be sold in order to repay some of what you owe to creditors. Trustees in Bankruptcy are either a civil servant (an Official Receiver) or a Licensed Insolvency Practitioner. They will group your assets into various categories.
Assets you are allowed to keep include most household contents (with the exception of valuable antiques), a modest vehicle and your tools of trade. You can also keep your pension fund, so long as it’s a fund approved by HM Revenue & Customs, although your Trustee may seek to recover for the benefit of your creditors any excessive contributions. Assets that can be sold include your personal property and any investments you have, like endowment policies. Should you receive a windfall, such as a legacy, this money will also go to your creditors. The Trustee is also able to apply to court for something called an income payment order if you are seen to have surplus income available.

4. So I could lose my home?

Your home is especially at risk because it is typically where the most value lies. There are a number of scenarios, depending on the amount of equity the bankrupt has in their home. For those who have some equity in their home and are the sole owner, the Trustee will generally immediately seek to take possession and evict the bankrupt. For those with no equity or 'negative equity' in their home, the Trustee in Bankruptcy will not usually seek to have the house sold. (Negative equity is when the first mortgage and any subsequent charges on the property exceed the value of the home.) This doesn’t mean that the mortgage company or the second charge lender won’t seek to force the sale of the property. If your spouse or children are living with you at the property, you may be able to seek to defer any sale by the Trustee until the end of the first year after your bankruptcy. After that time, the interests of your creditors will usually come first and the court will only refuse an order for sale in exceptional circumstances or if the value of your interest in the property is worth less than £1,000. Before seeking an order for sale, the Trustee would, however, usually offer the bankrupt’s spouse the option to buy out the bankrupt’s interest in the property. But if they are unable or unwilling to make this payment the Trustee could obtain an order forcing the sale, regardless of whether there are children or other dependent relatives living there.

5. How long does this period of being a bankrupt last?

The bankruptcy period usually lasts just 12 months. However, if you incurred your debts irresponsibly (through gambling, for example), or if you incurred your debts when there was no realistic prospect of repaying them, then the Official Receiver could obtain a Bankruptcy Restrictions Order against you. This means the bankruptcy conditions could apply for a further two to 15 years. About 1,000 people a year currently have these additional restrictions placed upon them.

6. Do other people have to know that I’m a bankrupt?

The first thing that happens in any bankruptcy is that it is advertised in a publication called the London Gazette, specifying your name, your occupation and your address.

7. Individual Voluntary Arrangements FAQs

What is an IVA?

An IVA (Individual Voluntary Arrangement) is a legally binding agreement between you and your creditors. 

All IVAs are supervised and set up by Licensed Insolvency Practitioners who are the only people able to set this type of agreement up.

An IVA will usually involve you agreeing to pay a set amount of money over a certain time period. This could be in the form of monthly contributions or in the form of a one-off payment.

This money is distributed equally amongst your creditors.  Any amount not repaid to your creditors at the satisfactory conclusion of the arrangement is then written off and your debts will be marked as satisfied. This will mean you do not have to worry about them any more.

Who is a Licensed Insolvency Practitioner?

 A Licensed Insolvency Practitioner has the licences and qualifications to propose and run all IVAs.

 Insolvency Practitioners are very highly regulated and will always give the best advice for each person’s circumstances

 How long will it take to set up?

In order to set up an IVA a proposal needs to be drafted. This will be put together on your behalf by a member of Barringtons' staff. This will be based on information that you provide to us. As long as all the information is given to us when requested this can take as little as ten days to complete, although this does vary from case to case.

Once the proposal has been drafted and you have approved it, a meeting of creditors will be called. In order to give creditors time to consider your proposal we are legally obliged to give them 14 days notice of this meeting.   

What happens at the meeting of Creditors?

The meeting of creditors is the point at which your creditors will come together and vote to approve your IVA.

 Over 75% of your creditors by value have to vote in favour for your IVA to be approved. In practice this will mean that the people you owe the most money to will have a bigger share in the vote.

 Creditors do not usually attend the meeting of creditors. They will usually vote by post or fax.

Will creditors still contact me?

Once your IVA is up and running all contact from your creditors should stop. Creditors can only be paid through the IVA once it is approved so from that point they will deal directly with us, relieving you of that continued pressure.

Can I obtain further credit?

Whilst your IVA is in force you should not obtain any further loans or credit cards.

The IVA will be recorded on your credit file for six years.  After this period you will be able to obtain credit if you wish.

 What will happen to my property?

One of the advantages of the IVA is that you will keep control of your house, something that would not happen if you were to be declared bankrupt. However, if you have equity in your property then your creditors would expect you to release this and pay it in to your arrangement. If you have significant levels of equity in your property it may be possible to propose an IVA using just the money you can release from your house by way of, for example, a remortgage.

Will my job be affected?

An IVA is a private agreement between you and your creditors. In most cases this will not affect your job.

What fees are involved?

There are two fees to be paid, one for setting up the IVA and the other for running the IVA throughout its duration.

These fees will both be taken from any contributions you make into the IVA so there is no additional money to find to pay these fees.

What are the advantages of an IVA?

 ·         An IVA is flexible.  The terms of the IVA are entirely dependent on your circumstances, and this means it will be affordable and manageable.

 ·         Your home and business will be protected, unlike in bankruptcy.

 ·         An IVA, once approved, is legally binding on all of your creditors. This means that none of your creditors can take any legal action against you.

 ·         Interest and charges will be frozen on your accounts at the point at which your IVA is approved.

 ·         You will avoid the stigma and restrictions of bankruptcy.  

 What are the disadvantages of an IVA?

 ·         As previously mentioned, an IVA could affect your ability to obtain further credit.

 ·         It is also likely that creditors will only vote for the IVA if it offers a greater return than if you were to be made bankrupt.

 ·         You will be bound into the IVA once it has been approved.  There are serious consequences if you do not meet your obligations under the agreement; this can include bankruptcy.

 If you are unsure of any aspect of an IVA, please call our team on (freephone) 0800 652 7137.

 My creditors are thinking of taking legal action, what can I do?

In cases where creditors are already taking legal action against you it is possible to apply for an Interim Order. This is a court order preventing any action from your creditors from progressing giving you the time to get your IVA in place.

 Who is eligible for an IVA?

Many different types of people enter into IVAs, and for varying reasons. As long as you have over £15,000 worth of unsecured debt and have some means of making an offer of repayment to your creditors, it should be possible to arrange an IVA for you.

 What are the alternatives?

 The main alternatives to an IVA are:

 ·         Bankruptcy.

·         Informal Debt Management Plans.

·         Refinancing with a consolidation loan.

·         Arranging informal reduced payments with your creditors.

 All of these alternatives have their advantages and disadvantages depending on your circumstances - please call our team on (freephone) 0800 652 7137 to arrange a free in‑depth consultation.