Bankruptcy FAQ’s – The Second in the Series

This is the second in the series of articles about bankruptcy1. What will happen to an unsecured loan in joint names if one of the borrowers goes bankrupt?Obviously it depends on the precise terms of the loan and you will need to look at the loan agreement to find out what they are but, in general terms, most joint loans are owned jointly and severally by all the borrowers and there is usually a provision in the loan agreement that if one of the borrowers becomes bankrupt the other borrower or borrowers are still liable to repay the whole of the loan. For instance, if two of you borrow £10,000 and one of you then goes bankrupt, the remaining borrower will be liable for the whole £10,000 not just half of it, £5,000.2. How will bankruptcy affect my bank account?If you have any bank accounts with a credit balance, as soon as the bankruptcy petition is advertised or the bank finds out in some other way, the bank is by law, obliged to freeze that account so you will not be able to draw on it, and any cheques that are already written but not presented will be returned. Similarly, any Direct Debits or Standing Orders will not be paid. However, on the day of your bankruptcy the Trustee will telephone you and probably write to your bank asking them to operate the account normally.If the account has no money in it, then it is a matter of policy for the bank as to whether or not they continue to allow you to operate that bank account during the period of bankruptcy. If the account is overdrawn, then again, the account will be frozen but the bank will give details as to the amount that they are owed to the Trustee in the hope of getting some payment. The bank will close that account, particularly if it is a loan account (you will have this included on your Statement of Affairs).3. Can I open another bank account?There is nothing in Law to prevent you from opening another bank account, but it must operate in credit and you must give details to your Trustee. In practice, however, banks are unlikely to open an account for you as an undischarged bankrupt, even if you do not want to borrow money.4. Would I have to give up bank accounts even if they are empty and have not been used for a while?When you are made bankrupt you have an interview with the Trustee. During that interview you will be asked to confirm he full details of all assets and liabilities and details of any bank accounts that you have. Details will have been included in your Statement of Affairs. If you knowingly give false answers in that interview or on that form, you are liable to prosecution and in very bad cases, imprisonment. If after that interview you realise that you have a dormant account that you had forgotten to tell the Trustee about, then you should immediately tell him. Everybody makes mistakes and you will not be blamed for simply forgetting. If you deliberately conceal the existence of an account then it is a different matter.5. Can the Trustee take my children’s savings if my name is on their bank account?No. The money belongs to your children and not you and the Trustee could not attack it unless, and there always is an unless, you have transferred significant sums of money from your own resources into your children’s names, purely and simply so your creditors could not benefit from it. In those circumstances, the Trustee would argue that this was a transaction with a connected person within five years of the date of the Petition, and accordingly set aside the transaction and reclaim the money. That said, an ordinary small amount to an ordinary child’s savings account will not attract the attention of the Trustee. In addition, the Trustee is only interested in money that belongs to you, not your children.6. Can the Trustee take my spouse/partner’s assets?No. There are exceptions, if you transferred the assets from yourself to your spouse/partner, either as a gift or at an undervalue, within the 5 years preceding the bankruptcy, then in the appropriate circumstances, the Trustee can set aside that transaction and claim the asset.7. Is there any asset which I might own which would not be vest in the Trustee on my bankruptcy?No. However, although your interest in everything that you own transfers to your Trustee, he is, as a matter of Law, obliged to leave you in possession and day to day control, a number of items and can exempt them from bankruptcy. These items can generally be summed up as those which you require for day to day living, so for example the furnishings in your home (providing they are not lavish or extravagant). Additionally, you will be allowed to retain the tools of your trade, if any, together with if appropriate, your motor vehicle. For example, if you are a self employed Plumber, there is no reason why could not continue plumbing as your occupation. It follows that if you are to get from job to job, you may well require an appropriate vehicle. That vehicle will be retained by you, even though the legal ownership of it is vested in the Trustee or the Trustee may exclude it from the bankruptcy.8. Can the Trustee take my vehicle if it is needed for work?The answer to the question depends on the precise circumstances. If, for example, you own outright a very valuable motor vehicle and you simply use it to get to and from work, then the Trustee may well take the view that you can either manage with a substantially less valuable vehicle and/or take public transport, assuming it is available. In those circumstances the Trustee is likely to sell the valuable vehicle but allow you to replace it with a significantly smaller and cheaper one, providing you are demonstrating a proper need, as opposed to convenience or desire.9. Does the Trustee have any claim on any inheritance that I may receive whilst I am bankrupt?Yes, all of it. If there is any likelihood that you are going to inherit any asset of value during the course of your bankruptcy, then you should take steps to persuade the donor to bequeath the asset in some other way. There are various legitimate ways of protecting the asset until after the discharge, but because of the complexity and the fact that each person’s position will be different, it is difficult to give a general rule of thumb approach.10. Does the Trustee have any claim on any pension that I have?The general rule is that for anybody who is made bankrupt now, the pension provision which they have made, they can keep. There are some exceptions, for example if it is demonstrated that impossibly large sums were paid into the pension fund immediately prior to bankruptcy, purely in an effort to keep the money from the creditors. If the pension is already in payment, in other words if for example, say a pension from a previous job, and you are already receiving it, then you will be allowed to keep those payments, subject to the fact that if you receive income from elsewhere your income from all sources will be aggregated to see whether or not you should make any contribution from your income towards your debts.11. What if I transferred any interest I had in any asset to my spouse/partner before I was made bankrupt?It would depend on how long before you were made bankrupt as to whether you had to declare it. In general terms, transfers of property to a connected person, typically spouse/partner, child, or parent within five years of presentation of the petition has to be declared and that transaction has to be examined by the Trustee.12. If I have a vehicle on finance, can I keep it?The answer is that it depends on the Trustee. If there is any equity in the vehicle, the Trustee would be interested in it. If, however, the vehicle is on Hire Purchase, so you do not get any legal interest in the vehicle until the last payment then the only interest of the Trustee is as to whether you can afford the repayments each month without adversely affecting the amount due to your creditors. If, for example, your spouse were to make the payments rather than yourself, then it is likely that you would be allowed to retain the vehicle. If you are not allowed to retain the vehicle then you return it to the Finance Company who provided you with the credit.13. How can I prove that an asset is not mine?Proving a negative is always difficult, but there are certain steps you can take. For example, and depending of the nature of the asset, how was it acquired? Did you buy it? If so, who is the receipt made out to, where did the money come from to pay for it? If it is a vehicle, is it registered in your name or another person’s name? Did you acquire the asset by credit card, if so, who is liable to the credit card company? Was the asset a gift, if so, who made the gift and to did they make it? If your spouse/partner’s parents gave an asset, did they give it to both of you, or did they give it to your spouse/partner alone? If the asset has been gifted to you, then a statement from the person who gave it is obviously very helpful. It is difficult to prove a negative and very little of the evidence available to you will be fully conclusive, but the more you can show an indication that the asset belongs to somebody else, the less likely it is that the Trustee will be able to lay claim to it.

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