*You should check with a licensed attorney in your state if you are considering bankruptcy as an alternative.
Bankruptcy
should be a last option considered for eliminating your debt. It leaves
a lasting effect on your credit and personal life for many years. It is
important that you understand bankruptcy before you consider it and
know the bankruptcy alternatives.
Bankruptcy - How it affects you
Bankruptcy affects many different aspects of your life.
Here's how:
In relation to your creditors
If
you declare bankruptcy, you must not make payments directly to
creditors. Creditors to whom you owe money when you are bankrupt 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);
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- court fines and other obligations arising under an order made in
family proceedings or under a maintenance assessment made under the
Child Support Act of 1991.
Suppliers of services to your home (gas, electricity, water and
telephone) may not demand from you payment of bills in your name which
are unpaid at the date of the bankruptcy order. They may ask you for a
deposit towards payment for further supplies or could arrange for the
accounts to be transferred into the name of your spouse or partner.
You
must pay continuing commitments such as rent (if you rent your home),
together with any debts you incur after the bankruptcy.
Your assets
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 upon the
making of the bankruptcy order. 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 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 and may ask the court to order you
to pay part of your wages, or salary or other income to him or her 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 or have a personal pension;
- any scheme rules about what happens in the event of bankruptcy; and
- the date at which your pension becomes payable to you.
You and your spouse or any dependant who has an interest in your
pension, 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 insurance policy
Generally,
your trustee will be able to claim any interest that you have in a life
insurance policy. The trustee may be entitled to sell or surrender the
policy and collect any proceeds on behalf of your creditors. If the
life insurance policy is held in joint names, for instance with your
husband or wife, 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
continue. 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 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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