The negatives of the bankruptcy process

8 July 2014

  • Bankruptcy is advertised and normally lasts 12 months, but remains on your credit file for 6 years affecting your ability to get credit.
  • A Bankrupt cannot apply for credit in excess of £500.00 without notifying the lender of the bankruptcy.
  • A Bankrupt cannot carry on a business (directly or indirectly) in a different name from that in which you were made bankrupt without telling all those you do business with the name in which you were made bankrupt.
  • A Bankrupt cannot be concerned (directly or indirectly) in promoting, forming or managing a limited company, or act as a company director, without the court's permission.
  • An Official Receiver or an Insolvency Practitioner will be appointed "Trustee" to manage your bankruptcy. He/she will want to interview you, to understand why you got into debt and to explain in detail the full process. They will take control of all your assets other than those you need to live (including your family) and work.
  • If you own your own home. Freehold or Leasehold, solely or jointly, mortgaged or not, your interest in the home (50% if married/partnered) will form part of your estate and may have to be sold to pay your debts. As from the 1st January 2011, the Official Receiver, as Trustee of the bankruptcy estate, will no longer dispose of the bankrupt's interest in a family home until 27 months after the bankruptcy order is made, except if an offer is received which is in the creditors interests to accept. You can take steps to protect your home and your wife, husband, partner, relative may be able to purchase your interest from the Trustee.
  • The Trustee can claim any interest held in a life assurance policy, less 50% if the policy is in joint names. Any pension income will be included.
  • The Trustee may apply to court for an IPA (Income Payments Agreement) but only if your income is in excess to your "reasonable" family living expenses. An IPO or an IPA (an Income Arrangement Order) can last for up to 3 years. Bankruptcy Restrictions Orders can be introduced if your Trustee decides that you have been dishonest either before or during bankruptcy. The court can make such an order, which last for 2-15 years and you will continue to be subject to the restrictions of bankruptcy.
  • A bankrupt cannot practice as a Chartered Accountant or a Lawyer, act as a Justice of the Peace (JP) become a Member of Parliament (MP) or a member of a Local Authority or act as a Trustee of a charity or a pension fund. Anyone employed, considering or being threatened with bankruptcy, should carefully check their "Terms & Conditions" of employment for any restrictions that would/might affect their job.

Read part one of our blog series on bankruptcy: The positives of the bankruptcy process

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