How bankruptcy affects you
Bankruptcy affects several different areas of your life. Here's how.
In relation to your creditors
If you are made bankrupt, you must not make payments directly to your creditors. Creditors to whom you owe money when you are made bankrupt must make a claim to your trustee. They should not ask you directly for payment. If you receive any requests, pass them immediately to your trustee to deal with and tell the creditor that you are bankrupt.
There are some very limited exceptions to this non-payment rule. The main ones are:
- Creditors who have a mortgage or charge on your home (if mortgage payments are not made, the lender may sell your home)
- Court fines and other obligations arising under an order made in family proceedings or under a maintenance assessment made under the Child Support Act 1991.
- If you are made bankrupt, suppliers of electricity, water gas, must treat you as a new customer from the date of the bankruptcy order and they may insist that you have a guarantor for quarterly accounts or pay a security deposit (otherwise you may be refused a quarterly account). They might ask for pre-payment meters to be installed. These conditions will depend on the policies of the individual supply company. You could consider transferring the supply into the name of another adult living in the home, if any, before petitioning for bankruptcy.
- You must pay continuing commitments such as rent (if you rent your home), together with any debts you incur after the bankruptcy.
You will no longer control your assets. If you have a business, this will normally be closed and your employees dismissed.
You can keep the following items, unless their individual value is more than the cost of a reasonable replacement:
- Tools, books, vehicles and other items of equipment which you need to use personally in your employment, business or vocation.
- Clothing, bedding, furniture, household equipment and other basic items you and your family need in the home.
All these items must be disclosed to the Official Receiver who will then decide whether you can keep them.
The Official Receiver will take control of all your other assets when the bankruptcy order is made. He or she, or any insolvency practitioner who is appointed as trustee, will dispose of them and use the money to pay the fees, costs and expenses of the bankruptcy and your creditors.
The trustee may apply to the court for an order restoring property to him or her if it is felt you disposed of it in a way which was unfair to your creditors (for example, if you had transferred property to a relative for less than its worth).
The trustee may claim property which you obtain or which passes to you (for example, under a will) while you are bankrupt. They may also ask the court to order you to pay part of your salary or other income to them if your income is more than you need to live on.
Your pension scheme
The effect of the bankruptcy on your pension rights will depend on such things as:
- Whether you are a member of an occupational pension scheme or have a personal pension
- Any scheme rules about what happens in the event of bankruptcy
- The date at which your pension becomes payable to you
You may wish to seek independent advice. But you must disclose full details of the pension to the Official Receiver/trustee who can consider whether there is an interest which passes to him or her.
Your life assurance policy
Generally, your trustee will be able to claim any interest that you have in a life assurance policy. The trustee may be entitled to sell or surrender the policy and collect any proceeds on behalf of your creditors. If the life assurance policy is held in joint names, for instance with your husband, wife or civil partner, that other person is likely to have an interest in the policy and should contact the trustee immediately to discuss how their interest in the policy should be dealt with. You may want the policy to be kept going. Ask your trustee: it may be possible for your interest to be transferred for an amount equivalent to the present value of that interest.
If the life assurance policy has been legally charged to any person, for instance an endowment policy used as security for the mortgage on your home, the rights of the secured creditor will not be affected by the making of the bankruptcy order.
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