Bankruptcy advice needed - URGENTLY

emma6283

Hi

Well, where do I start. (Sorry, this is going to be a VERY long first post)
My partner started up an insurance brokerage with a friend and his friend's dad 3 years ago.
My partner was 21 when it first started, and obviously had no business experience whatsoever. He mainly concentrated on the IT side of the business, whilst his friend's father "took care" of the money side of things.
For the first year, things looked ok, although all 3 directors took no salary. In the 2nd year, cash flow started to become a big problem for the company, (due to the length of time insurance commision takes to come through from providers). By the third year, the company had run up debts of £850,000.

To cut a very long story short, the Bank of Scotland decided that they would lend the company £750,000, against commisions that were due to come in.
All of this money was spent on supporting 40 staff and huge private rented offices. A further £100,000 overdraft was run up at Barclays.
He signed a £40k PG to Barclays and a £750K PG with BoS.

The extent of the companies financial problems were not realised up until 6 months before the company was wound up.

In August of last year, all directors had their salary decreased from £90k to £20k. After 3 months on this wage, (with massive outgoings of over £5000 per month) my partner decided to resign as director, and find a higher paying job.


Unfortunatley, this took him 6 months to do, and with bills of £5000+ per month, we soon got into big trouble.

His current personal debts are as follows:
Barclaycard £5,500
Barclaycard Plat £3,200
Monument £2,800
MBNA £5,800
Personal loan £40,000
Car HP agreement £330 - We currently have this car advertised (will have to pay around £1k to satisfy the amount outstanding)
Car HP agreement £225 - We have had this car for 2 years, and have tried to hand it back to the finance company, as per halves and thirds rule, but they will not accept this due to the fact that he did not satisfy a default notice within 10 days.
Car HP agreement £260
Mortgage £950

The company was closed in February of this year. His (ex) friends father declared himself bankrupt immediately, and lost his home to BoS. This took the total owing to BoS down to £350,000.
His (ex)friend has no chance of earning a descent income, and will no doubt also become bankrupt.
My partner managed to find a new job, in which we had to relocate from Manchester to Scotland with our toddler (which is really not where we want to be). He earns a really good income of £90k, working as a computer programmer for an investment bank.

We were just about getting back on our feet, and have just managed to get out of arrears, and were hoping to start clearing bigger amounts of his personal debt, when Barclays ring him basically saying, stop paying your other debts and pay us otherwise we will take you to court. He offered them £50 per month for the meantime until he could get his finances worked out. They declined.

The thing is, the personal debt, we fully accept, and are trying our hardest to repay as quickly as possible.
As for the business debt, it is highly unlikely that the other 2 parties involved will ever pay any money towards any of the debt. Their back up plan, is to move to S.Africa for 3 years, whilst they start up a new business, with lower running costs and come back when they're much better off.

We are seriously considering filing for bankruptcy, as it seems like the only way out of debt, without paying for a big mistake for the next 100 years.

The main problem is that he works for a bank. Would the bank be informed of his bankruptcy?

Without working in a banking environment, his income would probably be around £30k per year, so this would be a serious problem for us. It would basically end his career if he could no longer work in a bank.

Here are our current outgoings/incomings:

Mortgage £925 – We cannot sell the house due to a price drop in our area. (We took a 100% mortgage out.) We would end up having to pay £15k.
Rent in Scotland £995 – Can't get a cheaper house due to having 2 v.large dogs
Council Tax £225
3 cars (2 of which we don't need but can't get rid of) - £815
Car insurance - £160 (I only insure the one we use)
Barclaycard - £220
Barclaycard Plat- £150
Monument - £175
MBNA - £230
Personal loan - £50 (by agreement, but it should be £900)
Food/living expenses for 3 - £450 (Including nappies, baby food, etc)
Petrol - £250
Oil (heating) - £70
Gas/Water - £50
Tv license - £10
Pet insurance - £20
Last years tax bill - £500
=£5095

Incomings, after tax £4,900

The shortfall is made up by the small income that I earn selling on ebay.

With a total liability of around £450k, what would everybody advise? I'd really appreciate some advice. I am only 22 and my partner is 24, and with almost half a million pounds worth of debt on our shoulders, the future does not look good.

Can anyone answer the following questions:

Would the bank he works for be informed of his bankruptcy?
How long will he be made to pay for the debts after he is declared bankrupt? Or will it be cleared after the initial 12 months?

Any more advice would be helpful and very much appreciated.
Thanks for reading

rprinter

Hi Emma, thanks for posting and welcome to the forum.

I know, it can often be a nightmare starting a company, esp with a partner, then starting a family etc.

There's quite a few bank employees on here who should be able to answer your specific question about your OH working for a bank: would they find out about his bankruptcy, and would they or can they legally dismiss him if this was the case.

Firstly, can you confirm if BoS have any security in place on the remainder of the business loan? (From my experience they only lend upon (ample) security)

Also, the personal loan (should be £900 but now £50 under agreement) is that the £40k loan? Has this offer been accepted, or rejected or is the one thats been rejected a different loan?

r

emma6283

Thank you for the response.

As regards the £750k loan from BoS. The initial security was based upon commision that should have come in (but for various reasons didn't). Towards the end though, they managed to get the other director to sign his house over (which is why this debt now stands at £350k). The rest of the security at the time was based upon 2 websites, which at the time were doing amazingly in Google, Yahoo, MSN. (They were in 1st and 2nd position for lots of loans, life insurance and mortgage keywords, bringing in £70k per month)

They were literally a few days away from a sale of one of the websites for £300k, (problem solved) when the website decided to disappear from all search engines, never to be seen again. Obviously the sale fell through. Shortly after my partne left the company, the 2nd website plummeted, basically meaning that no income was coming in. That was 7 months ago.

BoS have not as yet called in his PG, but they know his ability to earn, and have said that they will almost certainly go after him for it.

The £50 per month is for the 40k Barlcays personal loan. He offered the same amount to Barclays Business for the PG, and they refused, and asked him to get a loan to repay. They also told him to stop paying his other debts. (Despite the fact that 3 cc debts are owned by Barclays) They have now instructed their solicitor to take him to court.


Emma

rprinter

Thanks Emma.

Hopefully someone will be along soon to advise you on the bankruptcy whilst working for a bank question.

If that's do-able, or even if its not, I believe I have read threads elsewhere that suggest that if no or little equity in yr house, esp with kids, you should be able to hold on to your house in bankruptcy. Specially so if you and little'un live there (and you aren't a party to the loans so presume are not also going for bankruptcy too) and it would cost you more/same to rent, after the costs of moving etc.

It'll make no difference to you if OH is earning 90k or 30k - the Receiver will take all excess income except for agreed (and usually fairly generous) month-to-month living expenses for the duration of the Bankruptcy, which should be a year.

Your CAB should be able to give you an opinion on holding onto the house in these circumstances.

rprinter

Another point, with Barclays being difficult, get personal banking somewhere else quickly if you haven't already arranged that!

sparkle84

Hi I assume your partner works for an investment bank on that salary - I work for HSBC Investment Bank and bankrupcy would be a problem for me as they insist my salary is paid into A HSBC bank account which would then be frozen in bankrupcy - I would suggest you look over his terms and conditions and maybe even approach the HR dept I am sure they would be willing to listen and help

viktory

Hi

Not sure how much help I can be really, but I did wonder if your OH would be cleared from the bankruptcy after 12 months with such high debts. It may be longer (not that it matters much really - once you are a bankrupt credit is nigh on impossible).

Also, someone posted and said that you should keep the house if you and little ones are living there. However, it is my understanding that you are renting a property as well as owning the house. The OR may take a dim view of this.

That is simply my twopence worth! Hope someone more qualified comes along to help you, good luck and try not to worry too much.

Regards

Vicky

bonnie_2

why dont you rent the house out to get money to cover your mortgage that will free up quiet a bit. also excuse me for my mse brain but £450 a month on shopping i get by on £200 for 4 and we eat well, petrol might be high at £250 a month we spend £100 this was our limits set by the citizens advice beareau admittedly our take home pay is £29000 a year but you should be able to manage on a lot less than you are,if you cant sell the house to raise funds i think i would go bankrupt in your situation, but then you would have to accept a lower standard of living without all the worries of debt.good luck.

kevker

I agree with previous two posts. OR is very lenient if he can see that you are trying your best to bring down your expenditure. Might be worth looking into making some cutbacks.

Re the previous poster, when I was made bankrupt, the impression I got from the examiner was that the amount of debt you have is irrelevant as to how long you will be bankrupt before being dishcharged. It is how those debts arose. From what the OP has said I wouldn't have said that most of the debts are from the business, so hopefully shouldn't be too bad.

rprinter

It's my understanding that Bankruptcy now lasts one year, irrespective of the amount of debt. It can only be extended if reckless spending / gambling / hiding money away etc is involved.

The bulk of this debt looks to me like an honest business mistake and this happens all too often nowadays. In this case BoS went against the usual trend with business banks by securing a £750k loan against intangibles; promises of money in the future; and in my view shouldn't have made the loan in the first place. But they did loan it, without sufficient security, and because of that lending decision they'll lose half of it. The bank decided the risk was worth taking and lost out. The borrowers won't be penalised for this through an extended bankruptcy as far as I know.

r

kevker

I agree, from what the examiner said to me, everyone is automatically discharged from bankruptcy after 12 months, irrespective of the size of debt. But some of the restrictions can be enforced for up to 5 years (such as your obligation to inform people you are bankrupt, decalring you are a bankrupt when applying for credit etc.)

As to your point about the employer knowing. One thing I never realised is that when you are made bankrupt, all your income tax is paid to the OR. So what happens is after a few months you receive a new tax code so that the Inland Revenue no longer take tax from your wages (you will pay this then to the OR as part of your income payments agreement). The tax code you receive is NT (no tax), which is a pretty good indicator that your are a bankrupt. What you need to do is check your OH's employment contract. In all the documentation I have found on bankruptcy the following employment areas are restricted;
Police
Judge
Solicitor
Certain areas of finance

It may be that all the large financial institutions would balk at a bankrupt working for them because of the temptation with large amounts of money, especially if they are working in IT and the access they would have to information.