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Bankruptcy Laws

Bankruptcy is a choice that many people are forced to make when the find out that they are in financial trouble. However, bankruptcy is very much the last resort for most people in most cases. Bankruptcy law is not as straight forward and as care-free as it may appear on initial projections. Apart from the alleged shame of being bankrupt many other disadvantages could affect you.

For a start bankruptcy laws mean that unless otherwise stated in your contract with financial institutions you will have to surrender all assets that are in your name to the companies that you owe money to.

So how do you know if your contract with the financial institution suggests you will lose any assets that belong to you? This will depend on whether the loan is a secured loan or an unsecured loan. Should it be the later then the chances are you will not have to surrender anything.

But this is not always the case. Certain bankruptcy laws are put in place to stop people from overcoming this and taking on unsecured loans they cannot afford.

So will I lose my home the second I become bankrupt? This is not the case, as it will still belong to you until the companies that you owe money to apply for rights to possess your assets. This will almost certainly happen, so you should be sure to attempt to make alternative arrangements as soon as possible.

Will I lose my business? This depends on a lot of issues. Firstly let’s clarify the difference between a sole trader / partnership and a limited company. If you own a limited company and the company goes bankrupt then you will be OK. If you own a limited company and you personally go bankrupt then may lose equity in your business.

If you have a sole trader business where by your company is not a separate entity from yourself then no differentiation will be made between personal assets and business assets. This means you will lose business assets to your creditors.

How do you know what business situation applies to you? If your company cheque book reads “Company Name ltd.” Or “Company Name limited” then you will not lose your business assets.

Should your cheque book read “My Name T/A Company Name” or “My Name Trading as Business Name” then you will fit into the sole trader option. This will also apply should you be a partner in a partnership with no “limited company” qualities.

In bankruptcy law a common myth is that you can easily avoid losing your assets by merely signing over your assets to someone else you love or trust. This has now been overcome by legislation which very much puts the onus on you to prove this person has contributed towards owning the asset. For many years this was common practise for someone to undertake before starting a new business or taking financial risks.

Bankruptcy law has evolved to meet and cater for loopholes whilst offering security to people who are in financial crisis.

For a complete debt management solution, visit www.finance-inc.co.uk

For IVA (Individual Voluntary Arrangement) visit www.1va.co.uk