Buckley & Co

NOTE: The answers to the questions on this page are intended as a guide only and are not expressed or intended to be an authoritative statement of the law. For definitive legal advice on your particular circumstances consult a solicitor.

Introduction

The answers to these FAQ's are an effort to help you understand how bankruptcy might affect your life and how you might avoid becoming bankrupt. Bankruptcy is very serious and results in you losing almost all your assets. It restricts you from obtaining credit; if you have a business it will almost certainly close and you could lose your house. Certain things you have done quite properly, can, if you become bankrupt, result in you having committed a criminal offence. If you think that you might become bankrupt you should look for help as soon as possible. Contact your local Citizens Advice Bureau, a solicitor or an Insolvency Practitioner at once.

What is bankruptcy?

Bankruptcy is where, because you cannot pay your debts, a court declares that your assets must be sold and the proceeds paid to your creditors. You can only be made bankrupt by a court order and it means:

• That the people you owe money to (your creditors) no longer look to you for payment of their debts;
• That your property is shared out fairly among your creditors; and,
• That you can eventually make a fresh start in life and business freed from the burden of your debts.

Any individual over the age of eighteen can be made bankrupt, including partners, but first a court must be satisfied that you cannot pay your debts.

How can someone make me bankrupt?

You can be made bankrupt by a creditor, but only;

• If you owe more than £750.00. This is known as the "bankruptcy level" and may be changed from time to time; but was correct when this page was last updated.
• If the creditor can prove to the Court that you cannot pay the debt when it is due.
• Before a creditor can prove you cannot pay the debt he must send you a document known as a Statutory Demand. If you dispute the debt you have got 18 days to go to the Court to say you do not agree that the debt is due and tell the creditor that you have done this. If the creditor does not hear within 21 days after you get the Statutory Demand, then, because you have not disputed the Statutory Demand he can prove you cannot pay the debt when it is due (even if you can) and he can ask the Court to make you bankrupt.
• He does this by presenting a bankruptcy petition to the Court and serving it on you. The Court will not make a bankruptcy order if there is any application outstanding to set aside the Statutory Demand.
• If you get a bankruptcy petition you should not dispose of any of your assets. If you do and the Court subsequently makes a bankruptcy order, then these assets may be taken back from the person who has them. You cannot avoid bankruptcy by ignoring or by refusing to accept the documents. The Court will proceed in your absence. You should always try to reach some settlement before bankruptcy, no matter how difficult this seems. It is very difficult, and very expensive to try to reach a settlement after bankruptcy.

How can I make myself bankrupt?

Consult a solicitor or an Insolvency Practitioner. He will find out your circumstances and see if there is any way of you avoiding bankruptcy. If you cannot avoid bankruptcy the solicitor will prepare the necessary papers to apply to the Court for an order that you be made bankrupt. He will also help you to prepare a statement of what assets you have and what debts you owe. You must swear on oath to the accuracy of this statement.

What happens when I am made bankrupt?

First, the Court notifies the Official Receiver that you have been made bankrupt. An official from the Official Receiver's office will send you a questionnaire to complete and will tell you when to attend to discuss your case. You should complete the questionnaire before attending. Your bank account will be frozen and you should not dispose of any of your assets, as you are not allowed to do so.

Then a Trustee is appointed to take possession of your assets and sell them. The Trustee may be the Official Receiver or an Insolvency Practitioner.

You are under a legal duty to co-operate with the Official Receiver and your Trustee at all times.

What duties do I have as a bankrupt?

As a bankrupt you have certain duties;

• You must attend on the Official Receiver and your Trustee whenever required to do so.
• You must swear on oath as to your assets and liabilities, if the Official Receiver requires you to do so.
• You must give the Official Receiver and your Trustee any information about your affairs that they require.
• You must hand over all your assets and your financial records to the Official Receiver.
• If you have assets that you cannot hand over you must do all things reasonably required of you by the Official Receiver to protect those assets.
• You must tell the Official Receiver or your Trustee about any increase in your income or any assets you obtain during your bankruptcy (for instance, if you inherit any property). Your Trustee may be entitled to any assets you obtain whilst bankrupt.
• You must not obtain credit without saying that you are bankrupt.
• If you fail to give the information required then you could be brought to court and made to give it. If you do not give the information the Court says you must give, or if you fail to do those things which are properly required of you then you could go to gaol.

What about my creditors?

Once you are bankrupt you should not make any payments to your creditors, they will claim from your Trustee. Except for the following, creditors may not claim directly from you.

• Creditors who have any security over your home - If you took out a mortgage to buy your home, or if you pledged it to the bank as security for your overdraft or a loan, and you do not keep up the payments, then the lender may sell it.
• Court fines, although if you tell the court that imposed the fine that you are now bankrupt, you might get it reduced.
• Any payments you have to make under family or domestic orders, e.g. maintenance.

If you owe money for electricity, gas, phone, etc., then although the creditors may not claim against you for money due, they may require you to provide a deposit for future supplies.

You must pay any debts you incur after you are made bankrupt and you must pay continuing debts such as rent, rates, electricity, gas, phone, etc., The Official Receiver will tell your creditors that you are bankrupt. Your Trustee will sort out any disputes that there might be.

When he has sold all your assets he will tell the creditors what they will get. He will pay any fees that have been run up and then pay the creditors

Some creditors are entitled to be paid in full before anyone else gets paid. If you owe money to your husband or wife or to a partner they will get paid after everyone else has been paid in full. If there is enough money then creditors will be paid interest on what you owe them.

If there is any money left after all your creditors have been paid in full with interest, it will be returned to you.

What happens to my property?

You must hand over all your assets to your Trustee. If you have a business it will almost certainly close and your employees will be dismissed.
You may keep:

• such tools, books, vehicles and other items of equipment as are necessary to you for your personal use in your employment, business or vocation; and,
• such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of yourself and your family.

However, if any of these things may be replaced by a cheaper version that does the same job, the Trustee may sell it and give you the cost of a reasonable replacement.

If you disposed of any of your property before you were made bankrupt and the Trustee thinks that this was unfair to the creditors, he may be able to get it back. So if you made a gift to a relative or sold something for much less than it was worth, the Trustee may recover it.

If your Trustee has not sold any of your assets before you get out of bankruptcy, they do not become your assets again when your bankruptcy is discharged. They remain the assets of your Trustee who can deal freely with them.

What about my home?

If you own your home your Trustee will probably sell it. If your husband or your wife is a joint owner then they may be able to buy your interest from the Trustee. If they cannot raise the money then, if the house is sold, they will be entitled to claim their share of the proceeds.

If your husband or wife lives with you then they might be able to put off the sale of the house for a year. Further, it may be necessary for the Official Receiver or Trustee to take action to deal with your home within three years from the date you were made bankrupt, or he might lose his right to so do.

If your Trustee cannot sell the house, then he may get a charge against it and be paid when it is sold.

If you rent your home then the Trustee has no interest in it. You must, however, pay your rent, or the landlord may evict you.

What other effects does bankruptcy have?

Whilst you remain bankrupt you are under certain restrictions. These are

• You may not leave Northern Ireland without the approval of the Court, although the Official Receiver may approve you leaving for short periods, provided you stay within the British Isles.
• You may not hold certain public offices.
• You may not practice certain professions on your own account.
• You may not, except with the leave of the Court, act as a director of or, directly or indirectly take part in or be concerned in the promotion formation or management of a company.

And it is a criminal offence to:

• Either alone or with any other person obtain credit for more than £250.00 without disclosing that you are bankrupt.
• Either directly or indirectly to carry on business under a name different from the one you used before you were made bankrupt, without saying that you formerly used that name.

It is also a criminal offence if you have:

• Not kept proper books of account before you were made bankrupt.
• Contributed to your liabilities by rash and hazardous speculation (e.g., gambling).

Although these are not offences if you are not bankrupt.

You can have a bank or building society account although banks or building societies may be reluctant to business with you because you are bankrupt. You should tell the Official Receiver or your Trustee if you have such an account and any money in it might become theirs if it is not needed for your normal living expenses. You should not apply for a credit card and be careful not to overdraw any account you may have.

When you are discharged from bankruptcy you are also discharged from most of your debts, except fines, sums due under family or domestic orders or certain other debts arising from criminal activity.

How long do I stay bankrupt?

Normally bankruptcy lasts for one year. However, if you have not co-operated with the Official Receiver or your Trustee, then the Court may be asked to suspend your discharge.

If you were bankrupt before within the previous 15 years, then you will not get an automatic discharge. You must apply to the Court before your bankruptcy will be discharged. The Court may refuse to discharge you or may suspend the operation of your discharge, or require you to make payments to your Trustee for your creditors.

You can apply to the Court to have your bankruptcy annulled. If the Court annuls your bankruptcy it finishes then. Normally the Court will only annul the bankruptcy order where it should not have been made or where all your debts are paid in full.

How can I avoid bankruptcy?

You could try to come to an informal arrangement with all of your creditors to pay them over a period of time. The Citizens Advice Bureau could be helpful here. This will not bind any creditor who does not agree to it.

You could enter into a Deed of Arrangement. This will require an Insolvency Practitioner to take control of the assets you want to use to pay your creditors.

You could apply to the Court for an Individual Voluntary Arrangement. This is a formal version of the first option, which needs the consent of a majority of your creditors and then binds all of them. You must be assisted by an Insolvency Practitioner to effect an Individual Voluntary Arrangement.

The Official Receiver

The Official Receiver is a civil servant who is an officer of the Court and whose duty it is to administer bankruptcies. The Official Receiver must investigate your financial affairs before and during your bankruptcy. The Official Receiver is responsible for reporting to the Court any possible offences you might have committed. When you become bankrupt the Official Receiver becomes the receiver and manager of your assets and you must not dispose of them.

The Trustee

The Trustee is the person who obtains ownership of your assets. The Trustee may be the Official Receiver or it may be an independent Insolvency Practitioner who is appointed either by the Official Receiver or by your creditors.

Insolvency Practitioner

An Insolvency Practitioner is a person who specialises in insolvency matters. Insolvency Practitioners must be licensed and appropriately qualified. They are usually solicitors or accountants with considerable experience in insolvency.

The Court

In Northern Ireland bankruptcy is under the control of the High Court. A judicial officer known as the Bankruptcy Master normally deals with bankruptcy matters. A High Court Judge deals with serious matters. Most decisions of the Court may be appealed to a higher court.