Posts Tagged ‘County Court’

Is Bankruptcy a Good Option?

August 18, 2008

It’s certainly tempting.

The idea of being able to hide behind a wall erected against creditors can seem great in moments of panic and feelings of being very oppressed by heavy debts.

But obviously I have cautions for you!

Let me be clear first that what I write here certainly applies to debt in England and Wales, and though there are similarities to other places you do need to check. In the US for example there have been some changes in the bankruptcy laws which are rather nasty to debtors.

When I first realised my debt position my first thought was to go bankrupt. I was in a state of panic and to some extent my mind switched off. Maybe you have done the same, maybe you have not really had that experience.

Fortunately I calmed, and even when an advisor with one of the charity debt specialists told me I was ‘the best candidate for bankruptcy’ he had come across I spent my time considering his advice.

Very roughly going bankrupt puts all your financial affairs in the hands of the Official Receiver; he or she, not you, decide where your money goes and what creditors can expect, and what you, the debtor, need to live on. All your assets go into the pot.

Although this state usually lasts for just a year it can involve the loss of your home, even if the debt is nothing to do with your mortgage, or if you own your home outright. Other assets get included: car, holiday home, valuable record collection for example. And all this is likely to be examined, looked through and valued by a bailiff.

When you have debts you cannot pay, whatever approach you take, it is likely that any valuables will be considered as available for part of the debt repayment in some way.

It is unlikely that the bailiff or any other representative of the creditor or of the Official Receiver will know how to get the best value for these things.

Indeed you might have noticed that where debt leads to repossession of a house and home it is often the case that the repossessed house is sold at auction, often for a ridiculously low price. Less indeed that if the creditor treats the debtor with some civility and reaches an alternative deal for renting with an option to restart the mortgage at some future point.

Anyway that is another discussion, and mortgages are not something I offer expertise about, though many of my suggestions would be applicable for mortgage debtors as for others.

But if you do have a collection and you know that you do not have the income to meet your debts my advice would be to sell it yourself. That money must still go into the pot, so don’t try to hide it. This way it will at least show that you have tried to make the best restitution possible, and that will be a positive factor in your dealings.

There is an initial cost to bankruptcy. I think it has risen to just over £500. There is a small variation depending on whether the hearings are at a county court—not all handle bankruptcy—or at the High Court in central London, which acts for the Greater London area.

Where the applicant debtor is in a state of privation, or otherwise in severe financial difficulty, the court and the Receiver have the right to refund the charges. But those charges do have to be made up front.

Dealing with the Official Receiver is said to be a relatively friendly experience and is conducted across a table rather than in a formal courtroom. The job of this official is to help you to create a new beginning, though you will undoubtedly be put through a very fine mill of questioning and examination of your financial affairs.

These days there is a queue, and there will be some delay though I have no detail as to how long.

It includes the fact of being persona non grata for new debt for six years, even though you may become a discharged bankrupt within one.

There are some situations in which you may still be chased for some debts, but I think this is rare. Still you should make sure that you have any risk that way covered, and plenty research is in order as well as a discussion on the point with the Official Receiver should you take, or be forced into, this path.

You name will appear in the local newspaper as a bankrupt and it is possible everyone you know, and all your family, will hear about it and point fingers. They may be sympathetic—I believe that is far and away the more likely response.

But it can affect a lot of your relationships, possibly including your work. And you will be permitted to have only a basic bank account; that might badly affect any self-employed person, and cause problems for almost anyone.I think most advisors, most creditors and perhaps most debtors see bankruptcy as a last resort, that final step when all other ways of resolving the situation have failed.

I do agree with that. So if you are tempted down that path make sure you have thought through every other possibility, and understand the effects of this one on your life, well into the future.

Joseph Harris
Debt Control Man