Bankruptcy - Protective steps - My home and my business - Case Study 1

 This is an illustrative case study on bankruptcy and how it could impact on your home and business - This case study also addresses pre bankruptcy planning

Background

Philip and Lucy are a married couple. They own their own home and their combined equity is worth £20,000 with Philip's half share being worth £10,000

Philip is in business as a self employed as a plumber. He has no business equipment except for small tools. Philip has accumulated Inland Revenue, VAT and trading creditors of £50,000.

Solution - Regarding the House

Prior to petitioning for bankruptcy it would be sensible for Philip and Lucy to contact an Insolvency Practitioner (IP). That IP would arrange to have the house professionally valued to confirm, or otherwise
that Philip's share of the equity was £10,000. Lucy then raises £10,000 to buy out Phillip's share in the property.

Clearly it is far easier for Lucy to raise the £10,000 ahead of Philip's bankruptcy than afterwards. After the bankruptcy credit reference agencies would have a note of the bankruptcy and would be more reluctant to lend. The £10,000 is then held intact by the IP and post bankruptcy is paid to the Official Receiver (less the costs of the IP).

The equitable interest in the matrimonial home is then transferred to Lucy. Ahead of petitioning for bankruptcy none of Philip's creditors can now apply for a charging order against the property. In addition all the Official Receiver will require will be:

- Evidence of the valuation

- Evidence of the amount owed on mortgage

- Evidence of the equitable transfer having taken place

- A cheque for £1 consideration and fees of approximately £400.

The effect is that £50,000 of debts have been written at a cost of £10,000.

Solution - Regarding the Business

Philip will be able to continue as a self employed person in the bankruptcy period. The Official Receiver cannot take his "tools of the trade". (Section 283 of The Insolvency Act 1986)

Comment

Like all things in life if you take early advice and follow that with prompt action you can achieve the most favourable result for your families benefit.

In the above case study you can imagine the difficulty Lucy may have had in raising £10,000 after her husbands bankruptcy. If she failed to raise the £10,000 within one year of Philip's bankruptcy the Official Receiver (or trustee) would then sell the property! Half of the equity raised would then be handed to Lucy. Save your home and business from bankruptcy by taking early advice and by planning ahead of a bankruptcy order being made.