Invocas Financial

A Bankruptcy order may be obtained by any creditor owed more than £750, or your clients themselves may ask the court to make an order. In either case, the Official Receiver, a government official, will then contact your client for details of their financial position. Subject to certain exemptions, Bankruptcy means that your client's assets are sold and the money is used to pay as much as possible to their creditors. The assets will be sold by the Official Receiver or an Insolvency Practitioner, as your client's ‘Trustee in Bankruptcy'.

Assets your client will be allowed to keep include:

• Ordinary household contents
• A modest motor vehicle
• The benefit of a residential tenancy
• 'Tools of trade' (i.e. things your client needs to pursue their trade or vocation)
• Any money your client has in a pension fund. If the fund is large or if your client is likely to be able to take the benefits of the fund in the next few years, your client should seek independent legal advice

Firstly, your client must complete the Bankruptcy forms and pay their fee. Once these have been submitted to the Bankruptcy clerk, then he/she can begin proceedings with your client's local County Court for their Bankruptcy.

An appointment will then be arranged by the Bankruptcy clerk for your client's Bankruptcy hearing. When this happens the court will do one of the following:

• Postpone proceedings. This may happen to give the court time to gather more information. If this does occur another date will be set
• Appoint an Insolvency Practitioner. If the court believes that an Individual Voluntary Arrangement (IVA) would be more suitable then they may instruct your client to enter an IVA
• Dismiss your client's petition
• Accept your clients petition on the basis that the only option available to them is Bankruptcy.

In most cases the Bankruptcy ends after 1 year or even sooner if the Official Receiver decides to close his file early. The slate is then wiped clean and your client's creditors can make no further claims against them.

There are some exceptions. For example, your client may still have to pay any lump sum order made against them in divorce proceedings and any unpaid court fines. Even if some of your client's assets remain unsold after the end of their bankruptcy, they will still remain available to your client's creditors and may be sold. The existence of the Bankruptcy will also remain on record, e.g. at the Land Registry and with credit reference agencies.

If your client has surplus income above the needs of themselves and their dependants, they will be expected to make contributions to their creditors for up to three years, and may be ordered to do so by the court. If your client comes into any money during the Bankruptcy, such as an inheritance or a lottery win, that too will be available to their creditors.

Your client will have to pay £450 towards the costs of administering their bankruptcy and in most cases, they will have to pay the court fee of £150. In some circumstances, the court fee may be waived (e.g. if your client is on income support). The court will advise if your client is exempt.

Your client will also have to pay a fee of £12 to swear the statement of affairs in the High Court or before a solicitor; however, in a County Court there is no charge for this.

If your clients are a married couple and they are both applying for bankruptcy, they will each have to pay separate fees. If your client is a business in partnership, each partner will have to pay separate fees.

Your client may also have to pay part of their monthly or weekly salary to their Trustee in Bankruptcy. This could be forced upon them by a Court Officer. The only payment your client would be required to make would be from the extra income they had left over after an income and expenditure check had been conducted.

Bankruptcy has different consequences for different people. A professionally qualified person such as a solicitor or accountant may have their practicing certificate suspended because of their Bankruptcy, and a Bankrupt cannot act as a company director. Your client's Bankruptcy will be advertised in a local paper.

If your client enters Bankruptcy, some of the more common disadvantages are:

• If your client owns any valuable assets, including endowment policies, these will usually have to be sold
• It restricts your client's ability to obtain credit in the future without permission from the lender and their credit rating can be affected for many years after the annulment
• Your clients are not allowed to start up or be involved in the day-to-day management of a limited company
• Your clients are not allowed to act as a member of parliament, and there are certain other restrictions, such as acting as a member of any local council or school boards, etc.
• Your client may not practice as a chartered accountant/lawyer or act as a Justice of the Peace
• There may be a clause in any hire purchase agreements that your client has to terminate them if they become Bankrupt
• There will usually be a fee to pay with their application

If your client enters proceedings to become Bankrupt then they would have to surrender all of their assets to a Trustee. The Trustee would then be able to release any equity from those assets. Your client would be able to keep items that were necessary for work like books or a vehicle, provided that it was not valuable. Your clients Trustee would be able to advise them on the items that would need to be sold.

A Trustee in a Bankruptcy will be interested in:

• The equity within your client's property
• Shares, premium bonds, savings or endowments
• A vehicle with a high value. If your client's vehicle is sold then the Trustee will usually allow your client to buy a lower cost replacement
• Any money accrued from surplus income

Bankruptcy Orders are advertised in a publication subscribed to by banks, building societies and other financial institutions. This publication is called the London Gazette. Your client's details will also be placed on a Bankruptcy register which can be viewed via the internet. Details of your client's Bankruptcy will also be advertised in their local paper.

Credit referencing agencies will be aware of your clients Bankruptcy which will make receiving credit after their Bankruptcy difficult.

Generally speaking, if your client has equity in a house (i.e. it has a value in excess of any mortgages on the property), even if it is jointly owned, it may have to be sold.

If your client is a member of a professional body then they could lose their membership. Your client would need to check their terms of employment for further information. If your client works for a financial institution, such as a bank, then their contract of employment may be terminated.

If your client has a bank account then this will be closed and any money will be passed to their Trustee. If your client has an account in joint names then the Trustee will be able to take half of the funds available.

Yes, however they will struggle to obtain a credit account.

If you think your client may benefit from bankruptcy, call our team on 0845 60 60 661 who would be happy to discuss any cases with you.