Bankruptcy alternative

Diablo1774

Hi all,

I have been doing some thinking recently after looking at the possibility of getting a mortgage. It looks that due to my current financial position, it is unlikely that I would be accepted.

Whilst having this discussion with the mortgage advisor, we touched on other options, one being bankruptcy.

So I have done some digging around and looking a various sources of information about it and a thought has occurred to me, and I wondered if any body had ever come across it or personally tried it.

Here is my thought:
What does bankruptcy do? In a nut shell it hands all my financial responsibility over to a trustee of the court who will take my disposable income and pay my creditors an apportionment of that amount for 12 months. Any assets I have will be sold (I don't have any anyway, no house or car, and no cash reserves). Then I can't get credit for 6 years. After the 12 months I'm (maybe) released from my bankruptcy obligations. What are the pros and cons of this, well, I'm released from my obligations for one and I no longer have any debt, but then I will find it hard to get credit again. My creditors lose big time as the amount paid over the 12 months is a fraction of the amount I owe.

This doesn't seem like a good result for my creditors, as my credit report is now rubbish anyway so I don't lose there. I lose control of my financial responsibilities, well, I'm already on reduced payment plans with all my creditors and the trustee will more than likely put in place the same payment amounts I'm paying now (based on my SOA).

So, my thought and question is...Why can't I ask my creditors to reduce the capital of my outstanding balances down to pretty much what they would get from me via bankruptcy? For example, I owe £10k, which I'm paying £60 a month off on a payment plan, but if I declare myself bankrupt, they would get £720 (£60x12). So instead of going through bankruptcy just ask them to reduce it to £1000? They get slightly more, I avoid bankruptcy and in 16 months my debt is settled (ok, yes, I've not settled my moral debt of £10k).

Does this make sense? Is there some thing drastic I have over looked?

Any ideas or comments?

luvchocolate

you pay back for 3 yrs not 1 if you have surplus income.....br is not to be taken lightly for some of us it was the last thing we could do after trying all over avenues for years

alastairq

hi, welcome..and yes , you have overlooked an awful lot.

You need to go back and take a proper look at what bankruptcy, does, what it entails..and research this forum for the positives and the negatives of bankruptcy.

Firstly, you seem to have misunderstood the processes of BAnkruptcy?

The only aspect your '12 months' relates to, in bankruptcy
...is the normal length of time a BR remains Undischarged.

The Official Receiver [OR] has, usually, 12 months to settle the BR's estate...at which point, the BR person receives Automatic Discharge {AD]

During this time, the OR will identify and commence realisation of any assets.

These may be financial or property assets....ad there are certain rules and guidelines the OR follows.

Also, given that the OR will also leave the BR person with enough income for a 'reasonable' standard of living.....[the SOA]....any surplus of income identified is claimed for the BR estate [by agreement]....{IPA]

A surplus-based IPA [or, IPO, if no agreement reached, a Court order is sought]...lasts for 3 years from date of agreement.

This IPA can be varied up, or down, to suit the BR person's changing circumstances.

The BR estate is divided up between all identified creditors [tough on those who are not identified?}...but only after all the costs of administering the BR estate by the OR [ or, Insolvency Service] are deducted.

Whether creditors receive anything will depend on the value of the BR estate.

For major creditors, there will have been percentages offset in their business model...and there are certain tax advantages to holding 'bad debt'.

Many debts are 'sold on'....

Regarding the BR individual?

Whilst undischarged, the BR person is subject to the LAw, and certain restrictions.

There is no restriction on obtaining credit, as far as the LAw and BR are concerned...[simply certain compulsions of disclosure whilst undischarged.]

Where any restrictions on obtaining any credit arise, this is solely due to the presence of the BR on one's credit records.....a commercial restriction, rather than a legal one.

Credit arises from a variety of disparate sources.....motor insurance, phone contracts, power bills, etc.....and many folk who have undergone BR have found either no difficulties, or some difficulty.

It varies.

Many discharged BRs on this forum have credit cards, etc..and some have obtained mortgages.

MAny BR's have maintained mortgages throughout.

So, I suggest, if you really want to find the truth of the matter, you study the stickies at the top of this forum.

For the reality is, in many ways, far from what you think.

Diablo1774

Hi luvchocolate....

For the 1 year pay back I referred to the enterprise act of 2002, enacted in April 2004 that comments on a 12 month period before being discharged.

I do agree that BR isn't something to take lightly, and I haven't. I have spent almost three years (after a marriage breakdown) at this, sticking to my payment plans and not missing any payments, and I'd like to not go BR. However, if I continue on my plans it will take me a further 13 years, if my creditors can be that patient *shrugs*

If I went BR 3 years ago I'd be at the end of the tunnel instead of still trying to find a light switch...

My comment is more about negotiation with them and looking at the whole approach to it. I mean surely it's better to negotiate a better outcome for both parties, even if the potential outcome is still lower than they would like.

Diablo1774

Hi Alastairq, thank you for your reply..

I had used the 12 months as a starting point, yes I know an IPA can be in place for three years. However, my creditors still receive less than what I owe them, so the whole BR process is not really all that favourable to them, and that is sort of my point. If BR is not good for either parties, then would negotiation with them before BR not be a better plan? And by negotiation in terms I mean on the capital outstanding and not the current levels of payment.

I want to avoid BR as best I can, and that would also seem to be the likewise for my creditors.

tigerfeet2006

The thing is creditors are basically stupid and generally will not see the bigger picture and as far as they are concerned you could threaten BR like a hundred and one other people have but they have no proof that you would do it until you actually do it.

Who have you taken financial advice from up to now?

Diablo1774

Hi tigerfeet2006...

As yet, only the independent mortgage adviser (whole of market), other than that, no one. I intend to seek further advice from professional sources before making any type of decision.

I spoke to all my creditors about 24 months ago and entered into payment plans with them all. This has affected my credit report. And recently I have felt that I need to move on with my life and I would like to own my own property, hence the mortgage advice and having to keep moving house every 6 months....

I'm sure I wouldn't be the first the say I'm going to go BR to my creditors, they could just sell the debt anyway to someone else and recoup more that way. But then the next guy loses.

I just prefer to communicate and negotiate to try and find a more suitable outcome...before going down the BR route...if at all.

tigerfeet2006

Well then my honest advice to you is to read the Look Here First sticky first and ring someone like National Debtline tomorrow and get some free impartial advice on your situation.

https://forums.moneysavingexpert.com/discussion/1056083

Read as many threads on here as you can, going back a few pages, read the stickies, read and read some more. Ask questions on the board, read, ask and read some more.

Diablo1774

tigerfeet2006....whilst I'm having a look around the suggested reading, here is my SoA as mentioned on the other thread...

Statement of Affairs & Personal Balance Sheet

Summary
Monthly Budget Summary Amount(£)
Total monthly income 2,167
Monthly expenses (incl. HP & secured loans) 1,948.00
Available for debt repayments 219.00
Unsecured debt repayments 220
Amount short for making debt repayments -1

Personal Balance Sheet Summary Amount(£)
Total Assets (things you own) 0
Total Secured & HP Debt 0
Total Unsecured Debt 34,349
Net Assets 34,349

Household Information
Number of adults in household 1
Number of children in household 0
Number of cars owned 0

Income, Expense, Debt & Asset Details
Income Amount(£)
Monthly income after tax 2,167
Partners monthly income 0
Benefits 0
Other income 0
Total monthly income 2167

Expenses Amount(£)
Mortgage 0
Secured/HP loan payments 0
Rent 525
Management charge (leasehold property) 0
Council tax 97
Electricity 58
Gas 50
Oil 0
Water Rates 35
Telephone (land line) 35
Mobile phone 10
TV Licence 13
Satellite/Cable TV 30
Internet services 0
Groceries etc. 200
Clothing 50
Petrol/diesel 240
Road tax 0
Car Insurance 0
Car maintenance (including MOT) 0
Car Parking 0
Other travel 0
Childcare/nursery 0
Other child related expenses 400
Medical 35
Pet Insurance/Vet bills 0
Buildings Insurance 0
Contents Insurance 10
Life Assurance 0
Other Insurance 0
Presents (birthday, christmas etc.) 30
Haircuts 20
Entertainment 50
Holiday 20
Emergency Fund 40
Total monthly expenses 1948

Secured & HP Debt Description Debt(£) Monthly(£) APR(%)
Mortgage 0 0 0
Secured & HP Debt totals 0 -

Unsecured Debt Description Debt(£) Monthly(£) APR(%)
loan 4325 20 0
CCard 30024 200 0

Asset Description Value (£)
Cash 0
House Value (Gross) 0
Shares and bonds 0
Car(s) 0
Other assets 0
Total Assets 0

alastairq

hi..be aware, once debts get sold on, then sooner or later one DCA might well look to realise your assets..such as they are? {Ie, petition your BR for you?}
Also, you mention wanting to get onto the property ladder ? [or, words to that effect?}

If that happened, there might be an opportunity for [new} creditors to apply to Court to place a Charge on your new property..thereby converting unsecured debt into secured debt?
This action seems to be happening more, from the evidence of this forum?

tigerfeet2006

A couple of questions. How many children do you pay maintenance for? Is the amount you pay in line with the CSA amounts? How often do you have them at your house overnight?

What about car insurance/MOT/road tax etc?