Avoid A Financial Crisis In Your Personal Life

Best Bankruptcy Advice and How to Navigate the Process
Bankruptcy should always be considered a last resort. The effects of bankruptcy are immediate and wide-ranging, and bankruptcy remains on credit reference bureaus' records for at least six years. However, there are some benefits to bankruptcy: individuals who are facing bankruptcy likely have less than average credit which can be re-built after the bankruptcy is discharged, and bankruptcy offers relief to those who can see no other way out of a tough situation.

Before Declaring Bankruptcy
Alternative solutions such as Individual Voluntary Agreements (IVAs) and debt management companies should always be considered before bankruptcy. Once a bankruptcy petition is filed, the court may decide that an alternate arrangement is more appropriate and order the petitioner to use an IVA or another method, causing the petitioner to have spent £600 or more for a bankruptcy filing when an IVA might have been attempted in the first place.

Avoid the Appearance of Bankruptcy Fraud
If a bankruptcy filing is imminent, the most important first step is to avoid contracting or charging any further debt. Knowingly using or accepting credit when a petitioner knew that a bankruptcy filing was approaching can be interpreted as fraud, which can devastate a bankrupt's petition and constitute an offence.

Individuals who believe they are approaching bankruptcy must also avoid withdrawing large amounts of money from their assets or liquidating assets into cash as soon as they know that bankruptcy is likely to occur. Re-titling property into a spouse or relative's name, such as homes or cars, should also be avoided unless the borrower's equity is "bought out". Such actions are usually perceived as attempts to hide assets from court receivers and are not treated lightly.

During Bankruptcy
There are two ways a bankruptcy can be filed: a debtor's petition, brought on by the borrower, and a creditor's petition, brought on by a creditor. In order for a creditor's petition to be accepted by the Court, the debts owed must be at least £750. If a creditor files a bankruptcy petition against a borrower, the borrower must respond even if they do not agree with the motion; failing to respond can result in arrest and the bankruptcy being accepted by the Court. A borrower who does not agree with a petition brought by a creditor can dispute the filing or ask for the petition to be adjourned to give further time to pay; the Court will usually agree to this.

Once the bankruptcy petition is filed, there will be a hearing either at the County Court or the High Court in London. At the hearing, there are several things that can occur:

The Court can order a stay of proceedings. This delays the hearing, usually so that further information can be gathered.

The Court can dismiss the petition. As noted above, this is most frequently because the Court believes that an IVA or similar is a better alternative for the petitioner.

The Court enters a bankruptcy order. The petitioner is considered a bankrupt as soon as the order is entered.

After a bankruptcy order is entered, the Court will order a summary administration of the bankrupt's estate, and an Official Receiver will be appointed as trustee. Once the order has been entered, the bankrupt has 21 days to provide all of their financial information to the trustee. This includes everything that has any financial bearing: wages, inheritances, ownership in properties, debts owed, living expenses, and past tax statements.

It is critical that the bankrupt includes all creditors, as well as accurate amounts owed. Deliberate exclusion of a creditor from a bankruptcy proceeding is fraud. Mistaken exclusion of a creditor means that the creditor may pursue the bankrupt for the full amount owed because that debt will not be considered part of the bankruptcy. Even though so-called "non-provable" debts such as maintenance assessments and student loans cannot be part of a bankruptcy, they should still be declared to the trustee because these payments will be considered a part of the bankrupt's living expenses.

The trustee will also ask the bankrupt for a list of all items owned, with a notation of all items necessary to living. Necessary items include bedding, clothing, and other basic needs. Note that the trustee may either accept this list and exclude the items from the sale of assets, or determine that there is a "cheaper suitable alternative". For instance, if the bankrupt declares a Canali coat as a necessity, the trustee is likely to dispute this and include the coat in saleable assets.

Bankrupts may be able to keep their home and their car. The bankrupt's solicitor or trustee can explain the necessary procedures, as every situation is different.

It is a mistaken notion that the Court freezes a bankrupt's bank accounts. Banks typically freeze accounts as a matter of policy once they find out that the account holder has been declared bankrupt. The bankrupt must notify the trustee if the frozen bank account is needed for living expenses, and if the trustee agrees, they will ask the bank to release the account. In recent years banks have become more open to allowing bankrupts to have accounts; the bankrupt should contact their bank to discuss their options.

After Bankruptcy
Until the Court enters a discharge order, the petitioner is considered a bankrupt. It can take years for the necessary meetings with creditors and sale of assets can be completed, though with most estates the process is over within twelve months. During the period that an individual is considered a bankrupt, it is critical that the individual cooperate with the trustee. Remember that a bankrupt can also be jailed for contempt for removing assets from their estate while undergoing bankruptcy. Once all assets have been distributed and the court enters a discharge order, the bankrupt will be considered free from bankruptcy either two or three years from the date of the order, depending on whether a summary administration occurred.

Those emerging from bankruptcy often receive an increase in credit offers. This is because once an individual has declared bankruptcy he cannot declare bankruptcy again for a period of years, so creditors feel this is a "good" risk - the debt will have to be repaid. Former bankrupts must be wary not to fall into this trap; having all debts cleared by a bankruptcy is a fresh start, and all unnecessary debt should be avoided thereafter.