If you declare Bankruptcy the Court will ask you about your assets. If you have assets which could and should be sold for the benefit of your creditors, then you will have to do this. Normally you will not be asked to sell normal household goods. However, if you have any expensive luxury items, these may be at risk.
What if the goods are not yours?
Of course, you can only be asked to sell items which belong to you. If you have any expensive luxury items in your house but you can prove that they are owned by someone else (perhaps a relative), then these can not be touched by the Court. If you own expensive luxury items jointly with someone else, the Court may be able to sell these. The third party’s half of the sale price would be returned to them. Your half would be kept by the Court.
Household Goods and Items
If you are thinking about Bankruptcy, don’t worry about men arriving outside your house with a white van and taking all of your worldly goods, leaving you sitting on an orange box. This does not happen.
The Official Receiver will normally allow you to keep reasonable personal and household items. These items normally include furniture, electrical goods (your TV, DVD player and Stereo) and items in your kitchen such as your washing machine and fridge freezer.
As a rule of thumb, the law states that if you sell an expensive item and receive enough money to buy a cheaper version with a substantial amount left over, that item would be classed as ‘unreasonable’ and it would have to be disposed of and the proceeds contributed towards your Bankruptcy. Such items might include a plasma television or a state-of-the-art sound system. If you don’t possess any such luxurious items, you will be safe from the bailiffs.
If however, your furniture is made up of expensive antiques, then after the sale of these items, you would be able to refurnish your house with cheaper items and there would be money left over to go towards paying your debt. In this case then, the Court may be able to sell these items.
If you have a car which you need for your business or to get to and from work, you will normally be allowed to keep this as long as its value is not unreasonable. Often, if the value of your vehicle is greater than £2,500 the Court will consider that should be sold. You would be allowed to buy a cheaper vehicle and the difference would go towards your debt. You might be able to avoid the sale of the vehicle if a relative or friend can give cash to the Court for the amount it is worth over £2500.
If you need a special vehicle for work and the value of this is greater than £2500, the Court may agree to letting you retain the vehicle as it is a reasonable tool of your trade without which you could not work.
If you have a second vehicle such as a motorbike which you keep just for recreation, then it is likely that the Court will demand that this is sold and the money given to your creditors.
If you are living in a rented property, this will not be effected by your Bankruptcy. It is likely that your landlord will be told that you have been declared Bankrupt. However, as long as you maintain the agreed rent, most landlords will be happy for you to remain in the property.
Freehold / Leasehold Land or House
As a Bankrupt, ownership of any equity that you have personally in any house or other property will pass to the Court. The Court will want to realise this equity for the benefit of your creditors.
This means that either a third party will have to make an offer to the Court to buy out your equity or the Court will force the sale of the property to release the equity. If your husband, wife or children are living with you, it may be possible to put off a sale until the end of the first year of your Bankruptcy to give time for other housing arrangements to be made.
What happens if the property is owned jointly with someone else?
If you have a joint mortgage, the asset would be seized regardless of your partner’s financial situation. Unfortunately, there is no way to avoid this forced sale. However, the Court will only be able to claim your share of the equity; the rest of the equity will be returned to its rightful owner. Your partner would, however, be able to make an offer to buy your share of the equity and this money would be offered to the Official Receiver instead.
What will happen if I have no equity in my property?
The creditors are not interested in the physical bricks and mortar of your house – what they want is the equity that is tied up in it. If your house contains no equity at all, the Official Receiver will still take possession of the house. However, once this has happened, it is possible for a third party (relative or friend) to approach the Official Receiver and offer to buy back the title to the property for a nominal sum of £1 (plus the cost of solicitor’s fees). If you fail to do this, the Official Receiver will remain in control of the property for 3 years. If the property has accrued more value during that time, you would stand to lose that money. However, if the Official Receiver does not sell the property within 3 years, the Enterprise Act states that the property would be returned to you.
In most cases, your pension fund would remain untouched by the Court. However, you may be required to suspend payments into the fund for the duration of your Bankruptcy.
Windfalls While You Are Bankrupt
Will I have To Make Any Monthly Payments To The Court?
If you receive a windfall during the 12 months of your Bankruptcy, this money would be seized by the Court for the purposes of paying your creditors. However, once you have been discharged you are allowed to keep any lump sums you receive, even though your Income Payment Order may still run for a further two years.
As a Bankrupt person, you will be expected to make your best effort to repay what you can to your creditors through the Court. The Official Receiver will assess your ability to make monthly payments by considering your income and reasonable monthly living expenditures.
You will definitely be allowed to keep enough to cover your reasonable costs of living. However, if you can afford to make monthly payments, the Official Receiver will introduce an Income Payment Order. Often, the Court will request that payments are deducted directly from your wages. This order will last for 3 years (ie for up to 24 months after you have been discharged from your Bankruptcy) and will be regularly reviewed. As such, during the three year period, if your circumstances change and you can afford to pay more, you will have to do so.
It is unlikely for an Income Payment Order to run for longer than 3 years unless the Official Receiver feels there is a substantial reason to prolong it such as evidence of fraud or a previous Bankruptcy.
Can I save my assets by signing them over into somebody else’s name?
Absolutely not. The Court will check as to whether you have given away any major assets – or sold them for less than their true value – over the last five years. If you have done so, the asset will be seized by the Court regardless of who is in control of it at that time.
-Bankruptcyhelp Info: What is Bankruptcy?
-Bankruptcyhelp Info: Is Bankruptcy right for me?
-Bankruptcyhelp Info: How to declare Bankruptcy?
-Bankruptcyhelp Info: What happens to my assets?
-Bankruptcyhelp Info: Bankruptcy and bank accounts
-Bankruptcyhelp Info: Bankruptcy and credit rating
-Bankruptcyhelp Info: Bankruptcy and Trust Deeds in Scotland