Taking out a loan then declaring bankruptcy

jonathon01

What is the legal perspective if one were in debt and their income wasn't enough to service the current debts so that bankruptcy became the only real option (assuming no assets), but they got a personal loan, used this to pay their student loan (which would otherwise survive a bankruptcy), then declared themselves bankrupt? Is it legal to take out a loan knowing that you will be declaring yourself bankrupt in the near future and also, could an OR demand that the Student Loans Company return the money which had just been sent to them?

tmcd01

I think you'll find that this is going to be massively frowned upon! You would almost definately get a BRU/BRO and It is against the law to obtain credit knowing you are going to declare BR.
Student loans are a very low rate of interest and as its taken before you get your pay it normally dont miss it. I never do. The OR would be allowed to ask for the money back, but the Students loan company could say no.
Similarly i would think they could say yes and then start recovering the money from your pay again.

MicheH

Hot water and find yourself.

jonathon01

So it is a criminal offence to take out a loan knowing you will be declaring yourself bankrupt? I wasn't sure if this was the case or not as I have searched online but can't find anything definitive.

Do you have the reference for the relevant piece of legislation?

Also, does anyone have any case in points for what an OR or the affected creditor has done when presented with a situation such as this?

Thank you.

Bethankim

Getting credit when you know your are insolvent specifically to avoid to continue to pay your student loans will definitely get your self in trouble.

1. would be favouring a creditor above others
2. obtaining credit when you KNOW you are insolvent - i made it capitols because some people get credit before they have a light bulb moment and realise but thats not what your asking...and the OR is bound to clock on quickly that you took the loan to do this
3. im surprised you would get credit to even go down this route
4. if you did this and the OR realised then you could end up with a bankruptcy restriction order - in other words after your automatic discharge the restrictions you are under as a discharged bankrupt can continue for up to 15 years.

sorry if thats a tad stark, you need professional advice to look at your options.
also student loans are really tiny interest andkick in over a certain threshold..so once all your other debts are cleared under the bankruptcy then you should have the funds to pay them back.

if you cant because your unemployed for instance then you dont pay anyway and isnt the threashold 15K a year orsomething so without the debts you should have enough..

MicheH

I'm unsure we're able to help you with what your asking us. dare I say *is it that thing under the bridge?*

peachyprice

Once you are made bankrupt a report will be sent to your creditors, If any of your creditors beleive from that report that you have acted fraudulently agains them (i.e taking out a loan to pay off another creditor when you had no intention of repaying the loan) the have the right to pursue you for that fraud, any debt obtained fraudulently would not then be included in your BR.

If you need a debt solution that includes student loans perhaps an IVA would be a better choice.

jonathon01

Bethankim,

This is just a theoretical question. Naturally, I'm not saying I am going to do this. I just want to know what the actual facts are when it comes to taking out credit to give another creditor preference and if there have been any cases where a situation like this has come up. Without wanting to sound callous, I don't want to consider what is morally right or wrong. I just want to know what the cold print of the law says about it and if it were ever to be put in front of a judge, what legislation and precedences they would be looking at to determine if I have commited any sort of offence.

sparkle83

I think there are quite a few examples of getting loans close to BR and using them to pay other creditors (usually family) on the part of the insolvancy register the covers BRU/BROs. insolvency.gov.uk/databases/ddirector/viewbrobrudetailslatest.asp
look under those with 'entering a preference' or 'Fraud or fraudulent breach of trust' for the closest ones.

sparkle83

Oh, as for the law, pretty certain on the application forms there'll be a 'income' and 'essential outgoings' plus questions about other debts you're servicing, which you sign to say you've given truthful answers. If you're close to going BR, and are being honest with your figures, I'd be suprised if they give you a loan. But using false information to get credit is obtaining money illegally by deception, and as far as I know, a criminal case rather than a civil one.

fiveyearplan

My OR interview concentrated on whether or not I knew I was insolvent when I took out credit. I thought it was crazy because I hadn't taken on any credit in over a year before my BR and of course the OR was satisfied that I hadn't but I did feel like I was getting a grilling - my conscious was clean though.

I'd say - don't do it.