Bankruptcy could have an effect on your home, your income and any life policies or items on hire purchase you have.
What are assets?
Assets are the things that a debtor owns such as money, savings, property, vehicles, life policies, jewellery and shares. Any money or assets due to the debtor, such as business debts, also transfer to the trustee.
The debtor will normally be allowed to keep essential items needed for day-to-day living, such as clothes, furniture, household linens, floor coverings, anything used for cooking or cleaning, educational items and children's toys. They can also keep any tools they need for their trade, up to a value of £1,000.
During the bankruptcy and up to four years after the date of bankruptcy, or sequestration if awarded via sheriff court, a debtor must inform the trustee about any new assets they acquire which may include money or an inheritance. The trustee has five years from the date of bankruptcy to gather any newly discovered assets they weren't previously aware of. This does not include assets owed when the debtor was made bankrupt that the trustee is aware of, such as property owned.
If a debtor has sold, given away or disposed of any assets within the five years before their bankruptcy for less than their full value, the trustee may ask the sheriff to have this action changed and the assets (or their equivalent value) to be given to the trustee for the benefit of the creditors.
What will happen to my house?
What happens to your house will depend on a number of things, such as whether you own it yourself or jointly with someone else and if you live alone or if there are others living in the house.
Your trustee will also look into what your house is worth and what loans are secured on it.
What if I own a house?
If you own the house you live in, or any other property, it will transfer to your trustee along with your other assets. Your trustee will always carry out a search of the Land Registers to make sure that you do actually own the property. Your trustee can sell your house or allow your spouse, partner or family member to buy out their interest in it. If your trustee decides to sell it, the house may be sold on the open market. Your trustee must obtain the best price possible.
You are not allowed to sell the house.
Your trustee will take many things into consideration when deciding what to do with the house. They will consider the amount of equity, whether there are children or other dependents living in the house and how the trustee's actions will impact on paying your debts.
It is in your own best interests if you do own a house, either by yourself or with somebody else, to obtain independent legal advice as soon as possible and preferably before you are declared bankrupt. Your discharge from bankruptcy does not automatically transfer your property back to you. Your trustee’s interest in your property will be recorded in the register of inhibitions, preventing any sale of the property by anyone other than the trustee. In the first year of your bankruptcy, trustee will write to you about your property, noting the options available. Your trustee will aim to take action on your property within three years although, on some occasions, this will not be possible and may take longer. This may happen if the debtor or third party is buying out the trustee's interest in their property with an agreed payment plan, or if the trustee does not have the co-operation of a joint owner, which may result in lengthy court procedures to have a sheriff make a decision.
What if I used to own a house?
If you used to own all or part of a house and have since sold it, or gave it to your spouse, partner, or to anyone else, for less than the full market value, your trustee can ask the sheriff to change that transfer and to allow your trustee to reclaim your interest in the property. Your trustee will also ask you to explain what happened to any money you received for the property.
What if my house is rented?
If you rent your home, your trustee normally has no interest in the house provided you can show proof that it is rented. However, you may have to move if your trustee thinks you are paying too much rent. They can apply to the sheriff to set a limit on how much rent you should pay, to allow you to pay a contribution towards the costs of your bankruptcy and the payment of your debts.
If you have rent arrears, your landlord should not take any action to collect them once you have been made bankrupt. They can, however, take action and seek your eviction if you fail to pay your rent after the date of your bankruptcy.
What if the house is jointly owned by me and someone else?
If you own the house jointly with your spouse, partner or someone else, your trustee will discuss options with all parties. Co-operation of the joint owner or owners will minimise the stress and costs of realising your share of the house.
Your trustee can agree to the joint owner buying out their interest in the house. This can be in a lump sum payment, regular payments or through a re-mortgage package. The trustee will normally agree to such an arrangement if they get the current equity value for their share of the house. Your trustee and the joint owner would each pay their own legal expenses.
Other options include the joint owner selling the house and paying your trustee the relevant share of the net proceeds. Alternatively, the joint owner might agree to your trustee selling the house and receiving their share of the net proceeds. The joint owner cannot sell the property without the permission of your trustee.
If the joint owner does not co-operate in a sale and is unwilling, perhaps unable, to buy out your trustee's interest in the house, your trustee can ask the sheriff for authority to sell it. The sheriff will consider all circumstances, such as the amount of equity, whether there are children or other dependents living in the house and how the sale will impact on paying your debts.
What happens if I cannot pay my mortgage?
If you have a loan secured on your house and you do not continue to make your mortgage payments, your secured lender can repossess the house.
If there is a secured loan on your house your trustee is powerless to stop your secured lender from repossessing it. If your house is repossessed and sold by the secured lender and there are any proceeds left after their debt is paid, these will be transferred to your trustee.
What will happen to my life policy?
Your trustee will need to know about any life assurance policies you have as they may be assets in your bankruptcy. Some policies pay out only on death. However, some life assurance policies (including some death policies) can acquire surrender values. Other policies, for example, endowment policies, pay out either on death or on a predetermined date. Endowment policies or policies with an endowment element acquire a surrender value and may be cashed in. Your trustee may do this to bring funds into your bankruptcy.
Often an endowment policy will be formally assigned to your bank or building society. This will happen where you agreed with the lender to pay off all or some of your mortgage with the proceeds of the policy.
What happens to your assigned endowment policy when you are bankrupt will depend on what happens with your house. Your trustee will normally cash policies in for the benefit of your creditors unless you or a third party can buy out the trustee's interest in them.
What will happen to items I have on hire purchase?
What will happen to my income?
If you have surplus income from your wages or private pension, you will be asked to pay a contribution towards the cost of your bankruptcy and your debts. Contributions will not be taken if you are in receipt of social security benefits only.
Debtor Contribution Order
Your trustee will look at your income and assess a reasonable sum of money for you and your family to live on. They will assess whether or not you have any surplus income and, if you do, you must make a contribution from that. This is known as a Debtor Contribution Order. Where a debtor has submitted a debtor application for bankruptcy, the Debtor Contribution Order will be set at the date of the award of bankruptcy by AiB. Where a creditor petition has been awarded by a sheriff, the trustee has six weeks to submit proposal to AiB, which will make the Debtor Contribution Order.
When a debtor applies for their own bankruptcy they will have already had a meeting with an approved money adviser who should have assessed the debtors ability to pay a contribution using the Common Financial Tool. This must be provided to AiB with a debtor application for bankruptcy.
Can my contribution change?
Every six months your trustee will send you a questionnaire to review your financial position, which must be completed and returned - even if your circumstances haven't changed. If your financial circumstances change, you can ask your trustee to review your contributions. Your trustee can reassess the situation and may vary the Debtor Contribution Order.
Where a debtor has no surplus income or they are in receipt of benefits only, then no contributions will be requested and the Debtor Contribution Order will be set at zero. Should a debtor's financial circumstances change, a re-assessment of their income and expenditure must be carried out by the trustee. If there is any surplus income, the Debtor Contribution Order which was set at zero will be varied to the new amount set by AiB. A debtor must give account of his financial circumstances every six months until the Order has finished.
Where a debtor was awarded bankruptcy through the minimal asset process route and their circumstances have not changed (which means they make no contributions) – they will be discharged after six months and do not require to send the trustee an account of their financial affairs.
You must inform your trustee of any change in your financial affairs. Not doing so could result in restrictions being placed on you.
How long do I have to pay contributions?
A Debtor Contribution Order will last for 48 months from the date it is set-up. Your payment amount will be linked to your available surplus income, so the amount you pay can be amended by your trustee should your circumstances change.
Debtors can apply for a payment break up to six months, once in a four year period. However, you will need to meet strict guidelines to be able to do this. More information is in the Debtor's Guide
It is a criminal offence to fail to comply with the terms of a Debtor Contribution Order.
For more detailed infomation about the effects of bankruptcy, please see the Debtor's Guide booklet.