Disadvantages of Bankruptcy

We advise on all aspects of bankruptcy.  Some of the disadvantages of bankruptcy appear below:-

  • The Official Receiver or Trustee in Bankruptcy is required to sell assets to pay debts. This may include the sale of the family home or other properties.
  • Trustees in Bankruptcy incur significant costs which they will attempt to recover from the sale proceeds.
  • A bankrupt’s bank accounts may be frozen.
  • A bankrupt loses his assets as soon as he is made bankrupt as these pass to the Official Receiver, before a Trustee is appointed.
  • A bankrupt is unable to borrow more than £500.
  • The Official Receiver or Trustee in Bankruptcy may claim the bankrupt’s income over and above the amount he believes is required for reasonable living expenses.
  • A bankrupt cannot act as a director of a company.
  • A bankruptcy order is advertised in the London Gazette and reported to credit reference agencies.
  • Bankruptcy adversely affects a person’s credit score and the ability to obtain credit.
  • Failure to co-operate with the Official Receiver or your Trustee in Bankruptcy can result in criminal proceedings.
  • A bankrupt cannot bring most legal claims against third parties unless the Official Receiver or Trustee provide their consent, although this does not apply to personal injury claims.

 

Private Examinations

The Official Receiver or Trustee in Bankruptcy can proceed to court to obtain a court order requiring the bankrupt, their spouse, former spouse or third parties to attend court to be examined on oath and answer questions concerning the bankrupt’s affairs.

When a bankruptcy order has been made, the Official Receiver or Trustee can apply to the Court to privately examine any party prior to the bankrupt’s discharge, although they are able to obtain an order to examine the bankrupt at Court even after the bankrupt obtains his discharge, namely after one year of the bankruptcy order having been made.

The Court can, on an application made by the Official Receiver, order any person who has in their possession any property belonging to the bankrupt to deliver that property to the Official Receiver or Trustee. This includes any documentation which sheds light on the bankrupt’s affairs.  When a person fails to attend a private examination or the bankrupt is about to abscond to avoid examination, the Court may issue a warrant for his arrest.  The Court has power to order the bankrupt or any third party to deliver up any relevant property, including financial records relevant to the bankrupt.

 

Public Examinations

A public examination however only applies during the period of bankruptcy, normally one year from the date of the bankruptcy order and only applies to the bankrupt. This is to be contrasted with a private examination which may take place after the period of discharge and applies to third parties during the first year of bankruptcy.

We advise clients who are required to respond to requests made by their Trustee in Bankruptcy to co-operate by providing information or documentation concerning their financial affairs and dealings.  The Trustee in Bankruptcy is entitled to summon to appear before him certain persons who are able to provide information concerning the bankrupt’s affairs/properties.  This oral examination is conducted under oath and in open Court and if the person summoned to appear before the Bankruptcy Court does not provide the information or documentation sought, the Court may issue a warrant for his arrest and send the person to prison.  This extends to the bankrupt who fails to attend any public examination hearing ordered by the Court without providing a reasonable excuse, such as ill health.

 

Income Payment Orders and Agreements (IPOs and IPAs)

If the Official Receiver or Trustee believes that the bankrupt has surplus income, namely more money than needed to pay reasonable living expenses, they may make an application to the Bankruptcy Court for the bankrupt to pay over the surplus income to creditors.  This is known as an “Income Payments Order” (IPO).  The Trustee in Bankruptcy may seek agreement for the bankrupt to voluntarily pay an amount.  This is known as an “Income Payments Agreement” (IPA).  The Court will not make an IPO if the order will reduce the bankrupt’s income to a level below the amount required to pay for his and his family’s reasonable domestic needs.  IPOs and IPAs are made for a maximum of 3 years.

 

Bankruptcy Restriction Orders (BROs)

A Bankruptcy Restriction Order (BRO) is made by the Court where a bankrupt is seen as having engaged in some form of dishonest activity.  We advise clients on defending BRO applications and negotiate Bankruptcy Restriction Undertakings (BRUs) which can be more advantageous than BRO’s in terms of reducing the term of the bankruptcy restriction, namely by shortening the period of suspension from discharge.

A bankrupt who is subject to either a BRU or BRO has restrictions placed upon him for a period of between 2-15 years.  These restrictions are the same as those imposed in bankruptcy which include:

  • A bankrupt is required to declare his bankruptcy to any potential lender if he is wishes to borrow more than £500.
  • A bankrupt is unable to act as a company director.

A BRO may be sought if:

  • A bankrupt has disposed of his assets for less than their market value.
  • A bankrupt makes payments to friends and family and thereby reduced the value of his assets.
  • A bankrupt incurred debts knowing that they could not repay these.
  • A bankrupt engaged in unreasonable extravagant spending resulting in his creditors not being paid.
  • A bankrupt gambled away money or has been involved in bad or reckless speculation causing his creditors loss.
  • A bankrupt has committed fraudulent activity causing his creditors loss.