Bankruptcy Restriction Orders - Bankruptcy is one particular means of dealing with problem debt, but the process itself places restrictions...
Whilst bankruptcy is not something that most people set out to be involved with, it can be a blessing in disguise. I met a man who had been made bankrupt by HM Revenue & Customs (HMRC) for unpaid income tax and VAT. He came to see me to see if there was a better way to deal with his affairs. He traded as a sole trader and had run up about £132,000 in unsecured debt. This was made up of a variety of creditors including bank overdraft and loan, credit cards, lease on car, trade creditors, Income tax, and VAT. He had always been behind with having his accounts prepared and so HMRC had assessed how much tax they thought he should pay.
He believed that the assessment was too high but he had failed to have his accounts prepared and had not lodged any appeal against the assessments. This meant that the assessments were confirmed and HMRC could use this claim to petition for his bankruptcy. He had continued to trade as a sole trader, which he was entitled to do, to feed, clothe, and home his family. His net income, after business expenses, was about £2,000 per month. However, he needed all of this money to support himself and his family and had no surplus income to pay to his creditors.
As he was self-employed, his income could vary wildly meaning that some months he did not earn enough to meet the family budget. He was joint owner of his home with wife which had equity in it of about £80,000 of which his share was £40,000. He was struggling to pay the mortgage at times and had fallen into arrears.he was worried about facing repossession proceedings. He had two options. He could remain bankrupt or he could propose an individual voluntary arrangement. As his average income was only enough to meet his household budget he was not able to put forward a proposal that provided for a monthly payment. Therefore, the only proposal he had was to sell his house and pay his share of the equity to his creditors. He would also need to pay his accountant to bring his accounts up to date.
It became clear that bankruptcy was his best, or least worse, option. He was still going to lose his house, but all his debts would be dealt with and he could start again with a clean slate. It was unlikely that he would have to pay any monthly contribution to the Official Receiver. He would be automatically discharged in less than a year.