Bankruptcy: Glossary of Terms

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Administration Orders

If an individual has debts of £5,000 or less and at least one judgement recorded against them (as at 1 April 2004), he/she may apply to their local County Court for an Administration Order to be made. Usually the debtor will be examined, in private, by the District Judge, who will then decide whether to grant the Order. If the Order is made, then the debtor makes a fixed regular payment to the Court. The Court then distributes payments to creditors, on a pro-rata basis.

After Acquired Property

Any asset acquired by a bankrupt person, during the period of bankruptcy, could, in theory, be seized by the Official Receiver/Trustee in Bankruptcy. It would be most unwise for a bankrupt person to purchase a car, for example. A bankrupt person is expected to live a modest lifestyle during the bankruptcy and is allowed to keep as much of his/her income as is needed to provide a reasonable standard of living.

Replacement of worn household appliances, etc would not be classed as After Acquired Property. However, any item of significant value could be so classified.

Ambulance Chasers

In recent years the increase in personal indebtedness has been seen by many people as a ‘growth industry’ and, unfortunately, many more people are now providing ‘advice’ on debt and bankruptcy. Obviously, whilst many such advisers are good, caring individuals, there are some who simply play on the misfortunate and vulnerability of people in financial difficulties, often charging exorbitant fees, in the process.

Many ‘ambulance chasers’ check public records of County Court Judgements, Bankruptcy Petitions and Bankruptcy Orders. They then mail shot the debtors involved, offering various services and ‘solutions’ to the problem. Our advice is to be very wary of such people as many simply pray on the vulnerable.

Annulment of a Bankruptcy Order

There are three circumstances in which a Court may annul a Bankruptcy Order:

1. If the Order should not have been made

2. If the debts and costs of the bankruptcy have been paid in full, or guaranteed to the satisfaction of the Court.

3. If creditors accept proposals for settlement under an IVA. An application for annulment can be made whether or not the bankrupt person has been discharged from bankruptcy. The effect of an Annulment Order is to return the individual to pre-bankruptcy status.

Assets of the Bankrupt

Any assets owned by the bankrupt person, other than those described under ‘Exempt Property’, may be seized by the Official Receiver/Trustee in Bankruptcy. The term ‘assets’ includes property or items located abroad, as well as in this country.

Bankruptcy Offences

There are several offences a bankrupt person may commit, the most common of which are the failure to disclose assets, to conceal assets, failure to account for loss of property, to fail or refuse to make the required documents and records available to the Official Receiver, destroying books and records and omitting to give a full and frank disclosure to the Official Receiver/Trustee in Bankruptcy, fraudulent disposal of property and obtaining credit during the bankruptcy, without disclosing his/her bankrupt status.

Whilst, as a result of the Enterprise Act, the bankrupt may still be automatically discharged within 12 months of the Bankruptcy Order being made, the Official Receiver could apply for a Bankruptcy Restriction Order or Bankruptcy Restriction Undertaking, for a period of between 2 and 15 years, depending upon the severity of the offence. The bankrupt person could also have his discharge suspended if the Official Receiver was dissatisfied with his/her conduct and required additional time to investigate his/her affairs.

Bankruptcy Restriction Orders

The Bankruptcy Restriction Order is a new concept, being one of the provisions of the Enterprise Act, introducted to deal with dishonest, reckless and culpable bankrupts. The purpose of a BRO is to protect the public interest, not to punish.

Bankruptcy Restriction Orders may be obtained by the Official Receiver for a period of between 2 and 15 years, depending on the severity of the offence. These BRO’s will restrict the bankrupt, for instance, from being a Company Director, obtaining credit in excess of £500 without disclosing his/her bankrupt status, becoming an MP or JP and are also expected to impact upon professional qualifications and trading in any other name other than the name in which the Bankruptcy Order was made.

A Bankruptcy Restriction Order may only be obtained for an offence committed after 1 April 2004. A Bankruptcy Restriction Order may be obtained against the debtor who has been reckless (2-5 year BRO), culpable (5-10 year BRO) or dishonest (maximum 15 year BRO).

The criteria for the making of a Bankruptcy Restriction Order includes having been bankrupt within the previous 6 years, gambling, failure to co-operate with the Official Receiver, making preferential payments or disposing of assets at undervalue.

The Official Receiver must apply for a Bankruptcy Restriction Order before the bankrupt receives his/her automatic discharge (in most cases on the first anniversary of the Bankruptcy Order being made).

Bankruptcy Restriction Undertaking

This is very similar to a Bankruptcy Restriction Order but is reached by agreement with the debtor, rather than by an Application to the Court.

Certificate of Discharge

Whilst discharge is automatic, the debtor will not receive any notification that he/she has been discharged.

If proof of discharge is required, then an application should be made to the Court where the Bankruptcy Order was made, quoting his/her bankruptcy date and number. The current charge for a Certificate of Discharge is £60 (as at March 2004).

If the discharged bankrupt person is to apply for a mortgage, then he/she would be well advised to obtain a Certificate of Discharge as such a document is most likely to be required by the new mortgage lender.

If confirmation of discharge, but not a Certificate, is required, then such confirmation is available from the Official Receiver.

Change in Circumstance

If a bankrupt person experiences a change in circumstances during the period of bankruptcy, ie an increase in salary (other than normal cost of living rise), then there is an obligation upon him/her to advise the Official Receiver/Trustee in Bankruptcy.

Consolidation Loans

We are very sceptical about anyone borrowing more to pay off existing debt. Generally those companies offering consolidation loans charge a very high rate of interest as, by definition, they are lending to a ‘higher risk’ borrower.

Council Tax

Arrears or unpaid Council Tax is a debt which is included in bankruptcy. However, Council Tax is generally a joint debt of husband and wife (providing they reside at the same property) and, if one party to the debt goes into bankruptcy, the debt becomes the sole responsibility of the non-bankrupt spouse.

Credit Reference Agencies

There are two main Credit Reference Agencies. They are Equifax Europe (UK) Limited, Department 1E, PO Box 3001, Glasgow G81 2DT and Experian, Consumer Help Service, PO Box 40, Nottingham NG7 2SS. Individuals may obtain copies of their Credit File by making application to either or both of the above. At the time of writing, the fee is £2 and we generally recommend sending a Postal Order, to avoid the delay while a cheque clears.

Unfortunately, the Credit Reference Agencies will keep a record of a bankruptcy on their files beyond discharge. We are advised that that period may be reduced, in due course, as a result of the Enterprise Act.

It is also likely that anyone with the same surname as the bankrupt, living at the same address, will be affected by that person’s bankruptcy. Whilst the Credit Reference Agencies refuse to accept that a husband and wife have independent financial status, they are, however, willing to place a ‘Notice of Disassociation’ on their records, to show that the financial circumstances of parent and offspring are separate.

Anyone dissatisfied with the actions of a Credit Reference Agency may contact The Data Protection Registrar at Wycliffe House, Water Lane, Wilmslow, Cheshire SK9 5AF.

Creditor’s Meeting

If there are assets in the bankruptcy estate, then a Creditor’s Meeting will be called by the Official Receiver. This must take place within 3 months of the Bankruptcy Order being made. Such a meeting will also be called if the creditors of the bankruptcy make such a request to the Official Receiver.

If such a meeting is called, it is likely that a Trustee in Bankruptcy will be appointed to continue the administration of the bankruptcy and, in particular, to realise assets for the benefit of creditors.

If the bankrupt is requested to attend, he/she must do so. However, such a request is quite unusual and, other than when such a request is made, there is no obligation on the bankrupt to attend.

Creditor’s Petition

Any creditor owed £750 or more by an individual or partnership may issue bankruptcy proceedings. The debtor is not required to attend the Bankruptcy Hearing. However, if he/she does not plan to attend, we suggest, as a matter of courtesy, that the Clerk to the Court be advised that the debtor is aware of the proceedings, but does not, indeed, intend to be present at the Hearing or defend the action being brought.

If, of course, the debtor intends to defend the action, he/she must attend the Hearing.

Crown Preference

Crown preference is abolished in all insolvency procedures. This means that all creditors – whether trade, personal or Inland Revenue and H M Customs & Excise will receive an equal share of any distribution (ie funds realised from the bankruptcy estate).

Debt Management Plans

There are numerous organisations, some more reputable than others, who offer the debtor the opportunity to make one payment of an agreed sum to them each month. They take their fees (usually between 10 and 20%) from that monthly contribution and then distribute the balance to creditors. Debt management plans do not, generally, provide any element of debt forgiveness, ie unlike bankruptcy or most Individual Voluntary Arrangements.

Anyone considering this method of dealing with their debt should seek independent advice (ie not just the advice provided by the Debt Management Company), to ensure that the best method of dealing with his/her financial problems is being followed.

Some Debt Management companies ‘encourage’ people to take advantage of the service they offer by claiming that they are able to substantially reduce the monthly payment the debtor is currently making to creditors. Whilst that may be so, the debtor is likely to have to make that reduced monthly payment over a considerably longer period.


Debtor’s Petition

Anyone with debts of £750 or more may submit his/her own petition for bankruptcy.

From 1 April 2007, the fee to take such an action is £485 for an individual. A debtor on low income or in receipt of certain forms of State Benefit may apply for a fee reduction. Those whose application for a fee reduction is accepted will only be required to pay £335.

A debtor wishing to submit his/her own petition should first obtain a Debtor’s Petition from his/her local County Court. Once the form is completed, an appointment should be made with the Court, to submit the Petition. This can usually be arranged within a few days and the Hearing normally lasts just a few minutes. If the Petition is properly completed and the District Judge is satisfied with the information provided, he may not require to see the debtor, but will simply make the Bankruptcy Order, based on the information provided.

Immediately the Bankruptcy Order is made, the Court will advise the local Official Receiver, who will then contact the bankrupt person. The bankrupt will be required to complete a Questionnaire and arrangements will be made for either a telephone or face to face interview.

Such an interview usually takes place within 7 days of the Bankruptcy Order being made. The interview duration will depend on the information provided and/or the complexity of the case. Debts excluded from Bankruptcy

Certain debts will not be included in a bankruptcy and will need to be paid, outside of the bankruptcy. Court fines, for example, will not be included in a bankruptcy and must be paid, as must maintenance payments and payments to the Child Support Agency.

Debts arising as a result of fraud or gambling will be included in a bankruptcy (from 1 April 2004 as a result of the Enterprise Act), but will render the bankrupt person subject to a Bankruptcy Restriction Order/Undertaking.

Debts to Spouse

If a person has borrowed funds from his/her spouse and then goes into bankruptcy, the spouse may claim in the bankruptcy but will be classed as a ‘last in line’ creditor. That is, he/she will only be repaid if all the other creditors in the bankruptcy, as well as the administrative costs of the bankruptcy, are repaid.

Discharge from Bankruptcy

From 1 April 2004, most people will receive an automatic discharge from bankruptcy after 12 months. Some people may be discharged earlier, if the Official Receiver is satisfied that there are no further investigations of his/her affairs required.

A bankrupt person cannot apply to be discharged earlier than 12 months from the date the Bankruptcy Order was made.

Anyone already in bankruptcy at 1 April 2004 will be automatically discharged on 1 April 2005, or on their due discharge date, whichever comes earlier.

To explain, if a Bankruptcy Order was made on 10 December 2003, that person would be discharged on 1 April 2005.

However, if a Bankruptcy Order was made on 10 February 2002, that person would be discharged on 10 February 2005.

In regard to a second bankruptcy - if that Bankruptcy Order was made before 1 April 2004, then the bankrupt person could apply for discharge (discharge is not currently/pre Enterprise Act automatic for a second bankruptcy) on the 5th anniversary of the Bankruptcy Order being made. However, if the second Bankruptcy Order is made on 1 April 2004, then automatic discharge will be granted on 1 April 2005.

Anyone having a second Bankruptcy Order made against them after 1 April 2004, may be subject to a Bankruptcy Restriction Order (BRO’s can only be obtained for an offence which has taken place after 1 April 2004).

To explain – someone who had a Bankruptcy Order made against them on 20 June, 1998 would have received an automatic discharge on 20 June, 2001. If that person had a second Bankruptcy Order made against him/her on 10 January 2004, he/she would need to apply for discharge on or after 10 January 2009. However, if a first Bankruptcy Order was made on 20 June, 1998, with automatic discharge granted on 20 June, 2001 and that person goes into bankruptcy again on 1 April 2004, he/she will be automatically discharged on 1 April 2005.

If, however, the second Bankruptcy Order is made on, say, 20 July, 2004, whilst he/she will be automatically dicharged on 20 July, 2005, he/she may well be subject to a Bankruptcy Restriction Order.

It should be noted that discharge from bankruptcy does not mean that the bankrupt person’s assets revert to them. Any asset possessed by the bankrupt person may be realised, after discharge.

Disposal of Assets at Undervalue

A bankrupt person would be breaking the law if he/she disposed of assets at less than their current value. For instance, if a husband ‘gifted’ his share of the matrimonial home to his wife, and the transaction was discovered, then the transaction would be overturned, ie the property would once again be jointly owned by husband and wife and the husband’s interest in the property would vest in his Official Receiver/Trustee in Bankruptcy.

Such a transaction would not stand in bankruptcy if the property was gifted less than five years before the Bankruptcy Order was made, if the husband was insolvent at the time or became insolvent as a result of making the gift. Even if the husband was solvent at the time of the gifting and did not become insolvent as a result of making the gift, the transfer must have occurred at least two years before the date of the bankruptcy, for the transaction to stand.

Whilst the husband may, in the above circumstances, be automatically discharged from his bankruptcy on the first anniversary of the Bankruptcy Order being made, he would likely be subject to a Bankruptcy Restriction Order or Bankruptcy Restriction Undertaking.

If, of course, the wife purchased the husband’s share of their home for fair market value and the transaction was properly recorded (ie a current market valuation obtained from a bonafide source, etc), and the appropriate transfer documents were drawn up by a solicitor, then that would be quite acceptable, although the husband could be expected to be called upon to explain how he had expended any funds he received, as a result of the transfer.

Equity in Property

We often speak to people who have relatively low unsecured liabilities and considerable equity in their property.

Borrowing on credit cards is very expensive. Similarly unsecured loans are generally at a higher rate of interest and often available (especially to those with a poor or adverse credit rating) by the less scrupulous lending institutions.

Anyone with equity in a property and unsecured borrowing they are struggling to service, should consider a remortgage of the property, to release funds to pay off unsecured credit. If monthly income is under pressure, it is common sense to borrow another £10,000 on a mortgage, to clear unsecured borrowing. An extra £10,000 on a mortgage will cost considerably less, per month, than a £10,000 balance on a credit card. Whilst the borrowing will not have been reduced, it will be more affordable. Obviously the credit card should not be used further, to avoid the individual having further unsecured borrowings, in addition to an increased mortgage payment.

Exempt Property

A Bankruptcy Order against a debtor gives that person protection from his/her creditors. Once a person goes into bankruptcy, pressure from creditors and/or bailiffs acting on behalf of creditors, will cease. Whereas a creditor with a judgement against a debtor may send in bailiffs to seize goods, in bankruptcy, normal household goods and personal belongings will be classed as exempt property.

As a rule of thumb, if a debtor is able to convince the Official Receiver that he/she requires a vehicle, worth up to around £500, for his/her work, or whatever, then usually (but not always) that vehicle will be classed as exempt property.

Similarly, tools of the trade of the bankrupt person continuing in business will be exempt. Normal household goods (three piece suite, TV, video, etc) will be exempt. However, any single item worth £500 or more (ie grand piano, collection of silver/rare books/antique table, etc) will be classed as an asset of the bankruptcy and may be sold for the benefit of creditors. .

Income Tax Refunds

Any tax refund paid to the debtor during a bankruptcy automatically vests in the Official Receiver/Trustee in Bankruptcy. It is a bankruptcy offence not to notify the Official Receiver/Trustee in Bankruptcy of such a refund. Anyone in PAYE employment is given an NT tax code, once the Bankruptcy Order has been made. If that person continues in the same employment, he/she will not pay any tax for the remainder of that tax year. The bankrupt person will not, however, benefit from that saving, but will be required to make same available to the Official Receiver/Trustee in Bankruptcy. A self employed person does not qualify, as above, however. A self employed person is required to pay tax and NI contributions as normal, from the date of the Bankruptcy Order. Any tax liabilities up to the date of the Bankruptcy Order will, of course, be included in the bankruptcy.

Income Payment Agreement/Income Payment Order

When a Bankruptcy Order is made, the bankrupt person will be required to provide, amongst other information, details of his/her income and expenditure. If it can be seen that the bankrupt person has disposable income, the Official Receiver/Trustee in Bankruptcy will expect him/her to make a contribution to creditors of around 50/60% of disposable income.

An Income Payment Agreement is a statutory contract and may be varied by written agreement or by Order of the court. An Income Payment Agreement may be obtained by the Official Receiver, as receiver and manager of the bankruptcy estate.

If such an agreement has not or cannot be reached, the Trustee in Bankruptcy may apply to Court for an Income Payment Order. In such an instance, all the relevant information is placed before the District Judge, who then decides on the level of payment to be made. If the debtor does not comply with the Order, he will be in contempt of court. An Income Payment Order may only be varied by a Court Order, not by ‘informal’ discussions with the Trustee in Bankruptcy. If an Income Payment Order is made and the debtor’s circumstances then change, the Order may be varied by an Application to court. In such circumstances, the debtor should, in the first instance, contact the Official Receiver/Trustee in Bankruptcy.

If agreement is reached by way of a voluntary contribution and the debtor’s circumstances change, he/she should immediately advise the Official Receiver/Trustee, so that a new agreement may be reached.

Income Payment Orders will last for a period of three years, starting from the date of the Income Payment Order being made (ie not from the date of the Bankruptcy Order). Income and Expenditure

There are no fixed guidelines in respect of how much a bankrupt person is allowed to keep, from his/her income, as everyone’s circumstances will differ, ie a single bankrupt person living in central London is likely to have higher living costs than a single bankrupt person living in another part of the UK; a family of six will have considerably higher outgoings than a couple with just one child, etc.

Those required to provide details of income and expenditure should take time and care in providing detailed and accurate information. Items of expenditure, for example, should include:


Gas, Electricity, Water

Council tax




TV rental/licence

Travel (public transport or car tax, insurance, petrol, repairs)

Life/household insurance

Child maintenance

Health care (dentist/optician/prescriptions)

School lunches/meals at work

Dry cleaning

Some allowance – say £50 per month – may also be claimed for emergencies/hair cuts/gifts, etc. The above is obviously only provided as a guide, but we regularly see people who have forgotten a major item of expenditure and then complain when an Income Payment Order is difficult to honour, as their expenditure is higher than that which they detailed to the Official Receiver/Trustee in Bankruptcy.

Individual Voluntary Arrangement

An Individual Voluntary Arrangement is a legally binding agreement, for the satisfaction of debts, either in full or in part, which is binding on all unsecured creditors. It is a method of avoiding bankruptcy, while still being subject to a formal insolvency procedure.

A proposal for an IVA must be made with the service of a licensed Insolvency Practitioner. It should be clear that, despite various guidance notes and best practice instructions from the regulatory bodies of Insolvency Practitioners, some people continue to be ‘encouraged’ to propose an IVA which may not be the best option for them, but rather give the greatest return to the Insolvency Practitioner.

Anyone considering an IVA should ensure that they receive best advice, explore all the options available to them and, in particular only make a proposal that they are 100% certain that they can afford. If creditors request a higher contribution, the debtor should give very serious consideration to his/her response. Despite ‘advice’ provided by some debt counsellors, Insolvency Practitioners, etc., in some instances, bankruptcy is the best method of freeing a debtor of unmanageable debt.

‘Fast Track’ Individual Voluntary Arrangements

Prior to 1 April 2004, anyone wishing to propose an Individual Voluntary Arrangement, whether to avoid bankruptcy or to lift him/herself out of bankruptcy, once the Bankruptcy Order had been made, needed assistance from a licensed Insolvency Practitioner.

One of the provisions of the Enterprise Act allows an Official Receiver to act as Nominee and Supervisor of an IVA.

It is suggested, at least initially, that the Official Receiver will only act in such a capacity when a Bankruptcy Order has been made against the debtor and he/she is able to make a contribution to creditors, from disposable income. He/she would need to prefer to propose an IVA – usually making payments for five years – as opposed to having the restrictions of bankruptcy for 12 months, being subject to an Income Payments Order or voluntary contribution for three years.

These ‘fast track IVS’s’ are likely only to be appropriate in few cases, those which are very simple and straight forward, with disposable income in the bankruptcy estate, but no assets. Such a proposal would need the approval of 75% of creditors by amount, but the creditors would need to accept the proposal as it was put to them by the Official Receiver, ie. there is no provision for any creditor(s) to apply modifications to the original proposal.

The costs of these fast track IVA’s are minimal –Nominees fee of £300, Registration fee of £35 and Supervisor’s fee of 15% of all asset realisations – and it remains to be seen how popular they are, after 1 April 2004.

Anyone who wishes to make such a proposal should do so as soon as possible after the Bankruptcy Order is made and certainly during the term of bankruptcy (ie not after discharge). If the proposal is accepted, the debtor would have the bankruptcy annulled and would be required to commence payments.

If the debtor fails to maintain payments into the Arrangement, the Official Receiver will take steps to encourage the debtor to re-start contributions. If that action is unsuccessful, the Official Receiver could issue bankruptcy proceedings, if he was of the opinion that it was within the public interest

Informal Arrangements with Creditors

Anyone coping with unmanageable debt should consider taking advantage of our negotiating service to enable us to advise their creditors of their difficulty and negotiate interest being frozen and lower payments, over a fixed period of time. Such an agreement could give the ‘breathing space’ many debtors need to restructure their finances (ie by remortgaging their property to release equity/return to work after illness, obtaining employment after redundancy, reassess their situation after a relationship breakdown, or whatever).

Creditors are, by and large, understanding when debtors experience problems, if they are kept informed of the situation. It is when matters are allowed to get out of hand (telephone permanently on answerphone, consistent missed payments, no response to requests to call, etc), that harsher recovery action is taken.

The best advice to anyone with financial problems is to seek advice, sooner rather than later, and to keep creditors informed.

Creditors may agree to a request to freeze interst and accept nominal payments, until the debtor’s circumstances improve. Alternatively, they may agree to accept a percentage of the overall debt in full and final settlement, if they can be convinced that that is the debtor’s best and only offer.

Inheritance during Bankruptcy

If a bankrupt person inherits during bankruptcy, that inheritance will be seized for the benefit of creditors. It is therefore vital that anyone who feels there is a chance of this happening, should take the appropriate steps to have the Will altered.

We are able to recommend suitably qualified people to draw up Wills, appropriate in bankruptcy. In a similar vein, any lottery winnings, for example, would be seized by the Official Receiver/Trustee in Bankruptcy.

If, of course, the inheritance/win was in excess of the debts and costs of the bankruptcy, then the balance would be returned to the debtor who could then apply to have his/her bankruptcy annulled. Any inheritance/windfall after discharge does not vest in the Official Receiver/Trustee in Bankruptcy and may be kept by the bankrupt person.

Joint Debts

If two people have joint liabilities and one goes into bankruptcy, those joint liabilities then become the sole responsibility of the non-bankrupt debtor.

Leases and Contracts

A lease agreement will be deemed to be null and void upon the making of a Bankruptcy Order, ie if a person has a lease on a shop and ceases to trade before the lease expires, a Bankruptcy Order will free him/her of any future liabilities on the lease.

Legal Proceedings in progress at date of Bankruptcy

Any civil action in progress against the debtor at the date of bankruptcy, other than matrimonial proceedings, die at the date of the Bankruptcy Order. In a similar vein, if the debtor is taking legal action against any other person, it is highly unlikely that the Official Receiver/Trustee in Bankruptcy will agree to the bankrupt person pursuing that action. This excludes any action for personal injury (perhaps as a result of a road traffic accidence, for example). The Official Receiver/Trustee in Bankruptcy would, however, have an interest in some of any award made, in a personal injury case.

Living and working abroad during Bankruptcy

There is nothing to prevent a bankrupt person either living or working abroad. Bankruptcy is jurisdictional, that is, a person bankrupt in England would not suffer the same restrictions as a result of his/her bankruptcy, if he/she went to live in the USA or Far East, for example. Passports are not confiscated, other than in very exceptional circumstances, where the authorities are of the opinion that the bankrupt person may try to disappear abroad with assets or funds. If a person living abroad has debts in the UK and wishes to submit to bankruptcy, he/she will be required to return to the UK to submit his/her petition. Such a petition will need to be heard in the High Court, Strand, London.

However, bankruptcy proceedings may be issued against a debtor living abroad, in his/her absence. The bankrupt person is unlikely to receive an automatic discharge unless he/she fully complies with the requirements of the Official Receiver/Trustee in Bankruptcy and this normally means at least making contact and providing information to the Official Receiver/Trustee in Bankruptcy.

Matrimonial/Family Home in Bankruptcy

The bankrupt person’s interest in their home automatically vests in the Official Receiver, immediately the Bankruptcy Order is made.

A bankrupt person, with dependents living with him/her, may expect to be given 12 months from the date of the Bankruptcy Order, before the Official Receiver/Trustee in Bankruptcy will take any action against the property.

Prior to 1 April 2004, an Official Receiver/Trustee in Bankruptcy could simply maintain his interest in a property until he chose to address the matter. However, one of the provisions of the Enterprise Act requires the Official Receiver/Trustee in Bankruptcy to deal with the main residence of the bankrupt or the property occupied by his/her spouse as a main residence, within three years of the Bankruptcy Order.

If the Official Receiver/Trustee in Bankruptcy does not deal with the property, by either any of the following options, then the property will re-vest in the bankrupt:

1. Seeking an Order for possession

2. Seeking an Order for sale

3. Reaching an Agreement to release his interest in the property

4. Placing a Charge on the property, protecting the equity available in the property at the date of the Charge being placed

The bankrupt person would be advised if the property revests in him/her, by the Official Receiver. The only exception to the above is where a property has equity of £1,000 or less. In such circumstances, the Official Receiver/Trustee in Bankruptcy will have no interest in the property (on the grounds that the releasing of the equity will cost more than the actual equity and will not, therefore, be of any benefit to the bankruptcy estate).

The level of equity will, of course, need to be established by obtaining a valuation of the property, from a suitably qualified person, ie a Chartered Surveyor.

Anyone already in bankruptcy and being the owner or a joint owner of a property will be given three years from 1 April 2004 to deal with the property.

It therefore follows that all of the aged bankruptcy cases currently being handled by the Protracted Realisations Unit of the Insolvency Service will be addressed by 1 April 2007.

Official Receiver

The Official Receiver is an employee of the Insolvency Service, an executive agency of the Department of Trade and Industry.

There are around 35 Official Receiver’s offices in England, Wales and Northern Ireland. If an individual has a complaint about an Official Receiver, he/she may contact Insolvency Service Headquarters, 21 Bloombury Street, London SWC1B 3QW. It is recommended that the complainant provides details of the bankruptcy – date, number and court where the Order was made, as well as a clear description of his/her concern.

Pension Rights in Bankruptcy

Anyone having had a bankruptcy petition issued or a Bankruptcy Order made, prior to 23 May 2000, will find that their pension vests in the Official Receiver/Trustee in Bankruptcy. In such cases, the Official Receiver/Trustee in Bankruptcy may well consider some proposal from the discharge bankrupt or third party to purchase his interest in the pension. Any agreement will depend upon when the pension matures, ie how soon the funds will be available, for the benefit of creditors.

Those people who had Bankruptcy Orders made against them after 20 May 2000 do not, in the main, lose their pension.

Procedure following the making of a Bankruptcy Order

Immediately a Bankruptcy Order is made, the Official Receiver will make contact with the bankrupt person, to establish the facts of the case and undertake any investigations necessary. If there are no assets in the bankruptcy estate or, indeed, only limited assets, the Official Receiver will continue to handle the administration of the bankruptcy.

If, however, there are assets available for creditors, then an Insolvency Practitioner will be appointed to act as Trustee of the bankruptcy estate. His prime duty is to realise assets for the benefit of creditors. His fee will be taken first, from the realisation of assets, prior to any distribution being made to creditors.

Pursuit by creditors included in a Bankruptcy

Not unnaturally, some creditors are very aggrieved when a debtor goes into bankruptcy. We do hear of occasions where a creditor will not accept that his debt is included in a bankruptcy and will attempt to pursue the debtor, either during the bankruptcy period or after discharge. This is illegal and such instances should be reported to the Official Receiver/Trustee in Bankruptcy. If any threats of violence are issued, the Police should be advised immediately.

Redundancy Payments and Payments in Lieu of Notice

Redundancy payments, like tax refunds or other windfalls such as inheritance, will vest in the

Official Receiver.

Similarly, any payment made in lieu of notice, during the bankruptcy period, will be classed as ‘after acquired property’ and may be seized for the benefit of creditors. Release of the Official Receiver/Trustee in Bankruptcy

If there are no assets in the bankruptcy estate and the Official Receiver/Trustee in Bankruptcy is satisfied that there will be a nil return to creditors and/or all distribtions have been made, he may apply for his Release. This in no way affects the length of the bankruptcy and is simply an action that is taken to limit the administrative costs of the bankruptcy and, in effect, closes the file.

Restrictions of Bankruptcy

The restrictions a bankrupt person has placed upon him have been reduced from 1 April 2004. Whilst a bankrupt person may not be a company director, he/she may be an MP or a JP, providing he/she is not subject to a Bankruptcy Restriction Order.

A bankrupt person may not obtain credit in excess of £500, without making the lender aware of his/her bankrupt status. We would, however, advise that agreement is obtained in writing, from anyone providing credit of above that limit, to avoid any disputes arising in the future, about the borrowing.

Self employment in Bankruptcy

There is nothing to prevent a person continuing to trade, after being made bankrupt. He/she must, however, continue to trade in the name in which the Bankruptcy Order was made and also work within the restrictions of bankruptcy.

Most bankrupt people who continue to trade after having a Bankruptcy Order made against them, find their biggest difficulty is in obtaining banking facilities. Hopefully as more financial institutions become aware of the provisions of the Enterprise Act, they will review that policies. Savings and Debt

Amazingly, we often hear from people who are struggling to cope with debt but who have savings in some form or other.

The bank rate being as low as it has for the last few years, savings attract very little interest. Unfortunately, many lenders (particular providers of credit and store cards) have not reflected the low interest rates in their charges.

It follows, therefore, that the best way of saving is to pay off debt first and foremost.

Statutory Demand

A Statutory Demand is a forerunner to bankruptcy and should not be ignored. It gives the debtor 18 days to either settle the debt or, if there are good reasons, to apply to have the Demand set aside.

Student Loans

At the date this Fact File was being prepared (mid-March 2004), student loan liabilities will be included in a bankruptcy. This situation is under review and it is likely that student loans will no longer be included in bankruptcy from Autumn 2004.

Those people specifically affected should check the current situation with us. It should also be noted that only the part of the loan borrowed/owing up to the date of bankruptcy will currently be included in a bankruptcy. Any loans drawn upon after the Bankruptcy Order is made, must be repaid as normal.

Suspension of Automatic Discharge or Objection to Early Discharge If the bankrupt person does not comply with the requirements of the Official Receiver or Trustee in Bankruptcy, his/her automatic discharge may be suspended. This will involve either the Official Receiver or Trustee making an Application to court to suspend. He will be required to provide information to support his Application.

Trustee in Bankruptcy

If there are assets in the bankruptcy estate, it may be expected that an Insolvency Practitioner will be appointed as Trustee of the bankruptcy estate. He will take his fees from the realistion of the bankrupt person’s assets, before any distribution is made to creditors. A Trustee is a licenced Insolvency Practitioner and is often more difficult to deal with, than the Official Receiver, due to the fact that he will be responsible for generating his own fees. Insolvency Practitioners are licensed by various bodies such as The Institute of Chartered Accountants, The Insolvency Practitioners Assocation, the Department of Trade & Industry and the Law Society.

Anyone wishing to complain about the actions of an Insolvency Practitioner will first need to identity which is his/her authorising body.

Utility Supplies

The suppliers of gas, electricity, water and telephones are advised automatically when a Bankruptcy Order is made, whether or not they are a creditor in the bankruptcy.

They will usually then contact the consumer and request that another person accepts responsibility for the account or that a prepayment meter is installed.

These days it is rare for supplies to be withdrawn, although not unknown.