Ask a StepChange (formerly CCCS) counsellor a bankruptcy question

UnluckyGal

Hi, partner and I (not married) are looking into bankruptcy after accruing 100K+ unsecured debt in a very short period of time (2-3 months). We have a decent sum in savings (50K-ish) but obviously not enough to make a big enough dent in the debts. We own a business that will be going under as well. We have no assets of value (no house), no kids, a car that Parkers values at 770 to sell privately and we live together in a rented property. Our plan is for the partner to not work during bankruptcy period. We are hoping that I could get a job and since we live together that I could then say I am the only one with income so I cover 100% of expenses. I want to avoid IPA for obvious reasons. Due to the big sum in the bank we can afford to pay 6 months rent upfront but that then obviously brings our expenses down. I guess my question is - is a scenario where I am sole earner in the household and I therefore OR agrees that I pay 100% of expenses feasible?

We are in a spot where we rent from a family member so it's juggling between either me trying to get a job (I do have my eye on a work opportunity that would suit me perfectly), hoping OR agrees I am covering 100% of the expenses and earning less than that

or

paying 6 months rent upfront and only taking on work that's small jobs, making sure we stay under ~500 pounds a month in earnings each.

Another q: if our families/friends want to lend us money over 500 pounds, how do we make sure it is not seen as a gift but as a loan?

We have just paid in full our car insurance, mot, road tax and tv licence for the next year - I presume that means we can't claim those as expenses in SOA?

Should we pay our HMRC tax that is due until next year before going for BR or does it not matter if we go BR anyway? We have been up to date with all of our taxes so far.

Any advice would be greatly appreciated.

StepChange_Patience

UnluckyGal said:

Hi, partner and I (not married) are looking into bankruptcy after accruing 100K+ unsecured debt in a very short period of time (2-3 months). We have a decent sum in savings (50K-ish) but obviously not enough to make a big enough dent in the debts. We own a business that will be going under as well. We have no assets of value (no house), no kids, a car that Parkers values at 770 to sell privately and we live together in a rented property. Our plan is for the partner to not work during bankruptcy period. We are hoping that I could get a job and since we live together that I could then say I am the only one with income so I cover 100% of expenses. I want to avoid IPA for obvious reasons. Due to the big sum in the bank we can afford to pay 6 months rent upfront but that then obviously brings our expenses down. I guess my question is - is a scenario where I am sole earner in the household and I therefore OR agrees that I pay 100% of expenses feasible?

We are in a spot where we rent from a family member so it's juggling between either me trying to get a job (I do have my eye on a work opportunity that would suit me perfectly), hoping OR agrees I am covering 100% of the expenses and earning less than that

or

paying 6 months rent upfront and only taking on work that's small jobs, making sure we stay under ~500 pounds a month in earnings each.

Another q: if our families/friends want to lend us money over 500 pounds, how do we make sure it is not seen as a gift but as a loan?

We have just paid in full our car insurance, mot, road tax and tv licence for the next year - I presume that means we can't claim those as expenses in SOA?

Should we pay our HMRC tax that is due until next year before going for BR or does it not matter if we go BR anyway? We have been up to date with all of our taxes so far.

Any advice would be greatly appreciated.

Hi there

Thank you for getting in touch and sharing your situation.

I'm sorry to hear what is happening with your business and understand how difficult it must be to make a decision like this. It's difficult to say which scenario would be best to follow through with. 

I'll explain the point's you've asked as best as I can but I would highly recommend you seek impartial advice from Business Debtline as they specialise in supporting those who are self employed. You could also contact the Insolvency Service for general information on bankruptcy too.

When the Official Receiver is looking into a person's assets, they will consider savings, vehicles, properties as well as other items of value. They may consider the £50,000 as an asset to obtain to reimburse your creditors and if this was used in full to cover the rent, even being a priority cost they may consider this to be disposing of an asset.

The vehicle, even at £770 could still also be considered and they may question whether it is essential or whether there is a cheaper alternative.

If family were to give you £500 as a gift, they may potentially need a signed letter confirming this.

Income payment arrangements in England and Wales are set if there is a surplus of £20 or more, in Northern Ireland you can keep the first £100, this will be calculated using their own budget guidelines. 

I hope this information helps a little, but as I mentioned I would recommend you seek advice first to ensure that it's tailored to you and you're made aware of any specific risks to yourself and your partner.

Patience

Underchipped

Hi,

Can I ask whether a bonus recieved annually based on both business and personal performance, but not guaranteed - certainly not recieved as regularily as quarterly or monthly etc... would fall under the lump sum protocol (if recieved), or would need to be encompassed in the statement of earnings before a DRO application ?

Thanks,

UC

StepChange_Aidan

Underchipped said:

Hi,

Can I ask whether a bonus recieved annually based on both business and personal performance, but not guaranteed - certainly not recieved as regularily as quarterly or monthly etc... would fall under the lump sum protocol (if recieved), or would need to be encompassed in the statement of earnings before a DRO application ?

Thanks,

UC

Hi,

Thanks for your post.

If a bonus is received on a regular basis, it is normally classed as a wage and apportioned on your monthly budget.

If your bonus is paid annually or is not guaranteed, it’s more likely that this would be treated as a asset received during the DRO moratorium, and the lump sum protocol would be followed. Depending on the amount received, the Official Receiver could consider revoking the DRO.

This would be decided on a case-by-case basis by your intermediary, so I’d recommend contacting them to discuss your budget. If you’re applying for a DRO through StepChange our details can be found here.

I hope this helps.

Aidan

Beckychapman12

Hi, Can i as a tenant apply for breathing space so I can have a chance to deal with my finances?

Thanks for any advice in advance.

Becky

StepChange_Allen

Beckychapman12 said:

Hi, Can i as a tenant apply for breathing space so I can have a chance to deal with my finances?

Thanks for any advice in advance.

Becky

Hi Becky

Thanks for posting.

There are few different factors that determine whether someone is eligible for breathing space; simply being a tenant doesn't stop you from applying. The first requirement is that you're seeking debt advice, or have had it and are looking to set up a debt solution. If you'd like some debt advice, you're welcome to register with us free of charge; please visit www.stepchange.org to get started online, or contact our Helpline for new clients on 0800 138 1111. 

If you're eligible for breathing space then, we can help you to get it set up.

I hope this is helpful.

Allen

toroymoi

Bankruptcy via Debt-Charity Route 
Hi MSE forum,

Wanted to ask Step-Change (will probably end up calling), have no assets, £45k in credit card non-priority debt. Debt Repayment plans suggesting going to take nearly 5 years to pay-off. Aware my debts will default either way, so have decided on the Bankruptcy option, and going via a Debt-Charity. 

My question is, will the appointed ICO go through each transaction on my credit card statements? I went through a dark time last year, and am all better, have had therapy and counselling. But there are questions transactions that were used for substance purchases. Furthermore, due to my salary being decreased by 20% for over 13-months now because of Covid, I was supplementing my monthly support to my girlfriend who lives overseas via credit-card transfers. One charity advised that this would void a bankruptcy agreement immediately. 

Do I just need to bite the bullet and pay a debt repayment plan for the next 5 years? Or will going with a charity provide a bankruptcy application some form of non-disclosure of how the debt was accrued?

I do hope my financial situation (salary income) changes in the next 12 months, but it was damming news to hear that now a bankruptcy might not be valid due to how it accrued (money sent supporting a loved one/dependent). 

Any advice would be greatly appreciated. 

Thanks.
Paul.

StepChange_Aidan

toroymoi said:

Bankruptcy via Debt-Charity Route
Hi MSE forum,

Wanted to ask Step-Change (will probably end up calling), have no assets, £45k in credit card non-priority debt. Debt Repayment plans suggesting going to take nearly 5 years to pay-off. Aware my debts will default either way, so have decided on the Bankruptcy option, and going via a Debt-Charity. 

My question is, will the appointed ICO go through each transaction on my credit card statements? I went through a dark time last year, and am all better, have had therapy and counselling. But there are questions transactions that were used for substance purchases. Furthermore, due to my salary being decreased by 20% for over 13-months now because of Covid, I was supplementing my monthly support to my girlfriend who lives overseas via credit-card transfers. One charity advised that this would void a bankruptcy agreement immediately. 

Do I just need to bite the bullet and pay a debt repayment plan for the next 5 years? Or will going with a charity provide a bankruptcy application some form of non-disclosure of how the debt was accrued?

I do hope my financial situation (salary income) changes in the next 12 months, but it was damming news to hear that now a bankruptcy might not be valid due to how it accrued (money sent supporting a loved one/dependent). 

Any advice would be greatly appreciated. 

Thanks.
Paul.

Hi Paul,

Thanks for your post. I’m sorry to hear that you’ve been having a difficult time.

Bankruptcy applications are very rarely refused by the Insolvency Service, and for reasons other than how the debt was accrued.

In some cases, you may get a Bankruptcy Restriction Order (BRO) if the Official Receiver (OR) believes you have acted dishonestly or irresponsibly before going bankrupt, but this is not common.

The OR would investigate your financial situation and debts over the past few years. They may look through credit card statements and query some transactions. It’s important to just be open and honest with them.

Payments to support your girlfriend abroad are likely to be questioned by the OR, and may not be accepted as a reasonable ongoing expense when calculating an Income Payment Agreement (IPA).

I can see from your other thread that you own a car worth £2,500. Please be aware that even if the OR agrees that a vehicle is needed for your work, they may require you to sell the car and buy a cheaper replacement.

Generally, if you can afford to repay your debts in less than five years we would suggest a debt repayment plan over bankruptcy, but I’d need to know more information before I could make a recommendation. If you’d like to get some further advice from StepChange you can use our online tool or give us a call to speak with an advisor.

StepChange can give advice on going bankrupt, but if you choose to go ahead you would need to apply directly through the Government website.

I hope this helps.

Aidan

LolaC86

Hello, I’m wondering if you can help. 

I have just started off the MAP bankruptcy process with stepchange after requesting payment extensions from my creditors for the last few months. 

I didn’t think to ask on the phone last week but I’m wondering how much cash you are allowed in your bank account as living expenses before it counts as an asset? 

Because of not paying my debts the last couple months and trying not to spend anything, money has built up a little bit in my account. I’m on UC so obviously don’t want to lose the money but I don’t want to look like I’m hiding anything either. 

I also was going to pay it to my dad as I am due him money from borrowing for my car, he doesn’t know about my money situation. But I seen on the paperwork that if money has been sent to family friends then they can request this back which obviously I don’t want! 

Please can you advise on how much I would need to declare as an asset? 

Many thanks, 
Lola

StepChange_Aidan

LolaC86 said:

Hello, I’m wondering if you can help. 

I have just started off the MAP bankruptcy process with stepchange after requesting payment extensions from my creditors for the last few months. 

I didn’t think to ask on the phone last week but I’m wondering how much cash you are allowed in your bank account as living expenses before it counts as an asset? 

Because of not paying my debts the last couple months and trying not to spend anything, money has built up a little bit in my account. I’m on UC so obviously don’t want to lose the money but I don’t want to look like I’m hiding anything either. 

I also was going to pay it to my dad as I am due him money from borrowing for my car, he doesn’t know about my money situation. But I seen on the paperwork that if money has been sent to family friends then they can request this back which obviously I don’t want! 

Please can you advise on how much I would need to declare as an asset? 

Many thanks, 
Lola

Hi Lola,

Thanks for posting.

Minimal Asset Process (MAP) Bankruptcy is a form of insolvency available in Scotland, aimed at people with a low income and few available assets. To qualify, your total assets (excluding vehicles) have to worth less than £2,000, with no single item more than £1,000.

You will need to declare the balance of any bank accounts as part of your bankruptcy application, and any money held in them can be counted as an asset.

The trustee will look at your financial history and has the power to reverse some transactions if they feel that they’re unfair to your other creditors (such as repaying a family loan before going bankrupt).

If you have more than £1,000 in savings or the money in your account puts you over the £2,000 total limit for non-vehicle assets, I’d recommend getting in touch with our Scottish team who’ll be able to give further advice. Their contact details can be found on our website.

I hope this helps.

Aidan