It’s not the cheeriest of topics to start the festive season with, but debt and bankruptcy is something that can affect all of us. Even Katie Price wasn’t immune. She was once estimated to be worth £45 million and was declared bankrupt by the Insolvency and Companies Court on 26 November 2019.
These proceedings followed after she had failed to keep to the terms of the Individual Voluntary Arrangement (IVA) that was set up with her creditors.
This case serves as a timely reminder of the implications bankruptcy can have on individuals.
Bankruptcy
What is it?
Bankruptcy is a legal process that occurs when an individual is unable to pay their debts. The debtor can voluntarily apply for bankruptcy themselves or, more usually, a creditor can apply to the court for the debtor’s assets to be taken and held to recover what is owed. To do this, the creditor must present a bankruptcy petition and demonstrate that the debtor owes at least £5,000. If the debt is less than six year’s old, a creditor can serve a statutory demand on the debtor. They have 21 days to either pay the debt or come to an arrangement to pay it off. If the demand is ignored, the creditor then has four months to apply to bankrupt the debtor.
What is an IVA?
An IVA is an agreement between a debtor and their creditors to pay all or part of the debts. The agreement will usually be to make regular payments to an insolvency practitioner, who will then divide the money between the creditors. This gives the debtor more control over their assets and is often preferable to bankruptcy.
Are there any advantages to going bankrupt?
- The debtor does not have to pay back the debts covered by the bankruptcy order
- The debtor can make a fresh start once the bankruptcy order has expired which is usually a year after
- The debtor can keep a reasonable amount of their income
- The debtor can keep ‘exempt goods’. These are items you would need on a day-to-day basis. For example, tools for their job; household items; a car for work).
But what are the disadvantages?
- The fee to go bankrupt is £680
- If the debtor has a high enough income, they will have to make contributions towards their debts for three years
- It will affect the debtor’s credit rating for six years
- Generally speaking, the debtor’s property will be consigned to a trustee in bankruptcy who will manage the property in an attempt to discharge any debts owing. This means that the debtor’s home, for instance, could be sold
- Any belongings worth more than £500 should be handed over to the trustee in bankruptcy
- Possessions not classed as ‘exempt goods’ may have to be sold
- It may be publicised
- The debtor cannot hold certain jobs without the court’s permission. This can include the director of a company for instance. It is also worth checking a contract of employment to ensure there are no restrictions regarding bankruptcy
- Breaking the restrictions imposed is a criminal offence, which is punishable by a fine or imprisonment
- Additionally, the debtor could have a bankruptcy restrictions order made against them, which can extend beyond the initial period for anything up to 15 years
- Bank and building society accounts will be frozen and will be handled by the Trustee in Bankruptcy unless directed otherwise.
These are just a few examples of the ways bankruptcy can affect a debtor, whether it is entered voluntarily or it is brought upon them by a debtor.
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