In a small number of cases, bankruptcy starts to appear as the only option left, but there may be alternatives before things reach this stage. For example, if you live in England, Wales or Northern Ireland, you may be able to enter into an Individual Voluntary Arrangement (IVA). You would need to get creditors responsible for three-quarters of the total amount owed to agree to it. If they do, you will have to pay them only the surplus money you have each month, after your living expenses have been deducted. This surplus will be divided between them, and after five years all your debts will be cleared. If you can get it, this arrangement is better than bankruptcy because you still have a lot of control over your affairs. A court will appoint a supervisor to take charge of your case and see that creditors are dealt with fairly. If goods are sold, the supervisor will divide the proceeds between the creditors after court fees have been paid.
Even before going as far as an IVA, you may be able to ask the court to issue an Administration Order, where an administrator will take a monthly payment from you and distribute it to your creditors. This arrangement will save you from having any of your property seized, provided that you can keep up the monthly payments to the court. This is explained further at this article titled “Chapter 7 and Chapter 13 Bankruptcy: What Are the Exemptions“.
In Scotland, once a debt exceeds a certain amount, either the creditor or debtor (or both) can petition for a Protected Trust Deed, where a trustee takes control of the matter and distributes your surplus money and any assets between your creditors. You only need to get creditors responsible for two-thirds of your overall debt to agree to this, and you will have to part with only your surplus cash, and any assets, for three years before your debts are cleared. However, you will have much less control over your affairs until the three years are up.
If you are considering any of these arrangements, you should definitely take professional advice.
If, after all the options have been explored, the only path left is bankruptcy, don’t panic! Being in debt is not a criminal offence, and you can still have a good life both during and after bankruptcy. In the meantime, you need to get good professional advice, but here is a summary of what happens.
When bankruptcy proceedings start, a Receiver will be appointed to look after your affairs. Your Receiver will be very used to dealing with these matters in a professional way, so there is no need to expect an ogre! You will need to give the Receiver information about all your debts and income, so it would be a good idea to take the personal financial statement with you. You will also need to provide documentation, such as invoices, utility bills, bank statements and wage slips, to back it up. You should include names, addresses and account numbers for all your creditors. The easiest way to do this would be to give the Receiver a statement or letter from each of them.
Once the Receiver has all the necessary information, and the bankruptcy order goes ahead, you will be declared bankrupt for a fixed term, which used to be for a period of two or three years, depending on the amount owed and other factors, but has recently been reduced to one year. During this time you will not be able to apply for loans or credit of any kind, and all your finances -especially income – must be declared to the Receiver. You will be allowed to keep a regular amount to cover your reasonable living expenses, and you may also be allowed to keep your home under certain circumstances. You may also be able to keep things you need to earn an income, such as important tools of your trade. Any other assets will be sold, and the money from these -along with any other cash – will be divided between your creditors. At the end of the bankruptcy term, all your debts will be cleared and you will be able to make a fresh start. Note, however, that there may be exceptions to this. For example, you will still have to repay any outstanding student loans. They remain the responsibility of the (former) student to repay within the terms of the loan arrangement.
As mentioned earlier, there is life both during and after bankruptcy! It’s not the end of the world, and once a bankruptcy order has been made, and everything has been handed over to the Receiver, many people experience a huge sense of relief, as if a weight has been lifted from their shoulders. You’ll be able to relax, knowing that your financial affairs are being sorted out by a professional. Many people who have been through bankruptcy have gone on to become huge successes, so just put it down to experience in the knowledge that things can now only get better.
