The fear of losing everything is one of the reasons people put off dealing with serious debt. It’s understandable, and it’s also one of the areas where the reality is often quite different from the assumption. Bankruptcy does have implications for assets, but the process has protections built in, and understanding how it actually works tends to be considerably less frightening than the version people imagine.
Who Takes Control of Your Assets
When a bankruptcy order is made, an Official Receiver is appointed and takes on the role of trustee. Their job is to assess what assets the individual has, deal with creditors and administer the bankruptcy estate. In more complex cases, a licensed insolvency practitioner may be appointed as trustee instead.
The trustee’s interest is in assets that have value above what’s needed for essential living. Not everything an individual owns is automatically at risk.
Your Home
For most people, the home is the biggest concern, and it’s also the most nuanced area of bankruptcy. If there is equity in the property, the trustee has an interest in that equity and may look to realise it for the benefit of creditors. However, if a spouse, civil partner or children live in the property, the trustee generally has a period of three years from the date of the bankruptcy order to deal with the property interest. If no action is taken within that period, the interest typically reverts to the bankrupt.
Where equity is limited or negative, the trustee may take the view that the cost of pursuing the property is not justified. Every case is different, and the outcome depends on the specific circumstances.
Vehicles
A vehicle that’s needed for work and is of modest value is generally not at risk. Where a vehicle has significant value above what’s necessary for reasonable transport, the trustee may look at whether a cheaper replacement could serve the same purpose and release value for creditors. Again, this is assessed on a case-by-case basis rather than a blanket rule.
Pensions
Pension funds are generally protected in bankruptcy. The Welfare Reform and Pensions Act 1999 provides that approved pension schemes do not form part of the bankruptcy estate in most circumstances, which is a significant protection for anyone who has been building up pension savings over the years.
Household Essentials
Tools needed for work, basic household furniture, clothing and everyday essentials are protected. Bankruptcy is not designed to leave someone without the means to live and work.
After Bankruptcy
For most people, bankruptcy is discharged after twelve months. At that point, the restrictions that come with bankruptcy end and the individual is free to move forward. The bankruptcy remains on the public register and on credit records for six years from the date of the order, which does affect access to credit in the years that follow.
If you’re considering bankruptcy or want to understand what it would actually mean for your specific situation, taking advice before making any decisions is the right step. The picture is almost always more manageable than the worst-case scenario people imagine. The Adcroft Hilton team can talk you through your position clearly and without pressure. Get in touch and we’ll help you understand your options.
Adcroft Hilton: Debt, Insolvency & Bankruptcy Specialists
Helping you make the right choice for your financial future.
