Bankruptcy Restriction Orders - Bankruptcy is one particular means of dealing with problem debt, but the process itself places restrictions...
Bankruptcy can be a very efficient way of dealing with unsecured debt that has got out of control. However, it can be disaster if the person who has been made bankrupt owns assets that have value.
Bankruptcy; is it right for you?
We were contacted by a man who owned two properties. He lived in one and rented the other out. Both properties had a combined equity of about £60,000. The rent paid the mortgage on the buy to let property and he had a reasonable income from a full time job. Finances were tight but they should have been manageable. Unfortunately, he had a habit of ignoring problems and one of these problems related to an unpaid council tax debt. Despite having received a number of legal notices, he failed to deal with them and was made bankrupt for a debt of about £5,000. There were a number of options he had. He could remain bankrupt but this would have meant selling the rental property which had about £25,000 of equity. The costs of bankruptcy, including the petitioning creditors’ costs, the Official Receivers fees, and the trustee in bankruptcy fees would probably have meant that most, if not all, of this money, would go. A sizeable addition to an original debt of £5000.
His next alternative was to propose an individual voluntary arrangement (IVA) setting out how he was going to repay the debt. Whilst the costs of an IVA are considerably less than bankruptcy, it was still going to cost £7,000 to £8,000 on top of the original debt as some of the costs of bankruptcy still have to be paid. His final option was to apply for an annulment assuming that he could find the £5,000 debt. Again certain costs of bankruptcy still needed to be paid and, with the legal costs he was likely to incur, this option was still likely to cost another £5,000 to £6,000. As can be seen, there was a high price to pay for ignoring problems, but there are ways to deal with it. If you have any concerns about debt problems do not ignore them call Lines Henry for advice. If you require advice, Call Lines Henry on 0800 012 6649.