(Article previously published in the Business Section of the Belfast Telegraph)
In this article we highlight some of the practical implications for individuals who may be faced with bankruptcy or who may be thinking of making themselves bankrupt.
We are all no doubt growing tired and weary of reading about the doom and gloom of the recession and the difficult economic climate in which we must now try and acclimatize ourselves in order to survive financially. More and more people in Northern Ireland are finding themselves faced with the prospect of bankruptcy because of the level of their personal debt. People may find themselves in financial difficulty for many reasons such as property speculation during the property boom years, redundancy or over-spending and over-reliance on consumer credit to fund lifestyles which they cannot now afford to repay. Before entering bankruptcy it is important to understand some of the significant aspects of the bankruptcy process and what this may entail for you and your family.
The bankruptcy process
Bankruptcy is commenced by either a petition to the High Court in Belfast by one of your creditors to whom you owe more than £750.00 or you can petition for your own bankruptcy. There is no significant distinction or advantage in being adjudicated bankrupt on your own petition or on the petition of one of your creditors and the process that follows either is exactly the same. Some people choose to petition the Court for their own bankruptcy to bring some conclusion to their debt problems.
If a bankruptcy order is made by the Court the matter will then pass to the Official Receiver who firstly acts as the receiver and manager of a bankrupt’s estate. In practice if a bankrupt’s estate is comprised of realizable assets of value then a licensed insolvency practitioner, being a suitably qualified accountant or solicitor, will be appointed as the bankrupt’s Trustee in Bankruptcy. Alternatively, the Official Receiver will become the Trustee in Bankruptcy. The Trustee’s role is to realize and administer a bankrupt’s estate for the benefit of his creditors in accordance with the insolvency legislation. Put simply this involves selling all assets which the bankrupt owned or had an interest in at the date of bankruptcy. The amount owing to any secured creditors will be discharged from the sale of these assets as will the administrative costs of the bankruptcy and the surplus, if any, will be distributed amongst the bankrupt’s unsecured creditors on a pro rata basis.
Duties of a bankrupt
If you are made bankrupt you will be subject to various obligations and duties. You will have a duty to cooperate with the Official Receiver and any subsequent Trustee and to provide them with all relevant information and documentation regarding the assets and liabilities that comprise your estate and to attend with them at their request. If you fail to cooperate then it is possible for an application to be made to the High Court to suspend your discharge from bankruptcy until your cooperation is forthcoming. Interestingly, the insolvency legislation in Northern Ireland also states that if a bankrupt fails to comply with his duties without reasonable excuse he will be guilty of a contempt of Court and liable to be punished accordingly.
Restrictions on a bankrupt
An undischarged bankrupt cannot obtain credit of more than £500.00 without first disclosing to the person providing the credit that he is an undischarged bankrupt. Contravention of this restriction is a criminal offence.
Some people may be surprised to learn that as an undischarged bankrupt you are not permitted to travel outside Northern Ireland without the Court’s permission, however if you intend to travel to the Republic of Ireland or Great Britain the prior written permission of the Official Receiver will be sufficient. If you intend remaining outside Northern Ireland for more than 2 weeks then you are required to inform the Official Receiver of the address where you will be staying and every subsequent change of address.
Furthermore, as an undischarged bankrupt you will be prohibited from engaging in a business under a trading name different to the trading name that you had when you were adjudicated bankrupt, unless you disclose to everyone that you are doing business with that you were previously made bankrupt under a different trading name. As an undischarged bankrupt you will also be prohibited from being a director of a limited company nor can you be involved in the promotion, formation or management of a limited company.
Discharge from bankruptcy
The above restrictions apply to all bankrupts until they have been discharged from their bankruptcy. Under the current insolvency legislation a bankrupt is normally automatically discharged from their bankruptcy after twelve months from the date that they were initially adjudicated bankrupt. However, this can be suspended if a bankrupt fails to cooperate or provide information to the Trustee in Bankruptcy or the Official Receiver during the course of the bankruptcy. If a bankrupt’s discharge period is suspended for any reason it will normally be necessary for the bankrupt to later make an application to the High Court to have this suspension removed and under such an application he will have to satisfy the Court that the reasons for the previous suspension have now been addressed in full. If you require assistance with such an application please contact our office.
Realisation of assets
It is important to be aware that discharge from bankruptcy will not signal the conclusion of your bankruptcy nor does it mean that you will regain any assets that may not yet have been realized. The Trustee in Bankruptcy continues to administer a bankrupt’s estate, regardless of the bankrupt receiving their discharge, until all available assets have been realized in full as far as possible and the proceeds from such realizations being applied in accordance with the insolvency legislation.
Arguably the most dramatic consequence of being made bankrupt will be the loss of your assets. However, you should be aware that it is possible for some assets that have been forfeited as a result of your bankruptcy to be purchased back by you or a family member provided the transaction is at arm’s length. This frequently occurs in relation to a bankrupt’s matrimonial home which is commonly owned jointly by the bankrupt and his wife or partner. A Trustee in Bankruptcy may be willing to consider selling their interest in a bankrupt’s matrimonial home to the bankrupt’s wife or partner, or indeed some other family member. This transaction will involve the property being independently valued and the amount owing to any secured creditors being confirmed and thereafter a calculation of the equity in the asset being carried out and the Trustee’s interest in same being ascertained. If you or a member of your family wished to explore the possibility of purchasing such an asset in your bankruptcy then please contact our office.
Not all assets will be lost as a result of being adjudicated bankrupt. The legislation specifies some protected assets that a bankrupt is entitled to retain even in the event of bankruptcy and which do not form part of their estate. These protected assets include tools of trade, books and vehicles which the bankrupt requires in relation to his business, profession or employment. Similarly, such clothing, bedding, furniture, household equipment and provisions that are required to satisfy the basic domestic needs of the bankrupt and his family are not lost in the event of bankruptcy.
If a bankrupt has an interest in their matrimonial home then this interest will have to be realized during the course of the bankruptcy. The insolvency legislation offers a bankrupt’s family a certain degree of protection in that unless there are exceptional circumstances the Court will not normally grant an order for possession and sale in respect of a matrimonial home until at least twelve months have elapsed since the debtor was made bankrupt. This usually allows the bankrupt and his family some time to either negotiate the purchase of the Trustee’s interest in their property or to find suitable alternative accommodation.
As an undischarged bankrupt you will be entitled to earn a living, hence the protection of some assets such as any tools of trade that are necessary for your continued profession or employment. However, if your earnings are of a level that are above that which is required to support and maintain you and your family then it is likely that your Trustee will wish to enter into an income payments agreement with you whereby you agree to pay over a certain portion of your earnings to them periodically for an agreed period of time. In the event that such an agreement cannot be reached then it is open to the Trustee to make an application to the Court to order that such payments be made by you or your employer under an Income Payments Order which can remain in place for up to three years.
Whether or not bankruptcy is an appropriate way of dealing with your indebtedness will be wholly dependent on your own personal circumstances and the assets and liabilities that make up your estate. Bankruptcy is not designed to be a punishment to those people who find themselves in financial difficulty, although this can be a common misconception of the process given that creditors will sometimes use the threat of bankruptcy in order to procure payment of their outstanding debt.
The bankruptcy legislation in Northern Ireland has evolved remarkably over the years to take its current form and it is best described as a legal process which can bring welcome relief to those in severe financial difficulty by removing the burden of debt from them, whilst at the same time producing an orderly realization of the bankrupt’s assets for distribution amongst their creditors as far as possible.
However, the bankruptcy process should not be entered into lightly as it will have implications for your credit rating and the level of risk which financial institutions will attach to you in any future dealings with them, such as any future mortgage or loan application. If you are considering bankruptcy or if one of your creditors is attempting to make you bankrupt it is vitally important for you to take appropriate legal advice from specialist insolvency solicitors such as McManus Kearney to ensure that you are fully aware of implications of bankruptcy for you and your family. This will also allow you to explore whether there is any suitable alternative available to you such as an individual voluntary arrangement or finance restructuring.
If you have any queries on bankruptcy or any aspect of the above article please feel free to email your query to me at email@example.com
McManus Kearney Solicitors, Belfast
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