Bankruptcy – How your debts are paid?

Bankruptcy is the inability to pay your debts even after their due and once declared the court appoints an official person to resolve your debt issues by sale of your assets. Any debt that cannot be paid by end of your bankruptcy term is written-off. The official receiver claims all possible assets and interests to make sure that your bankruptcy debts are paid to the maximum possible extend.

Asset and Debt Analysis

As soon as you are declared bankrupt, all interests and ownerships on properties or assets solely owned by you will be claimed by the Official Receiver or the trustee to pay off the debts to your creditors. They also tend to claim any spare income or money in banks towards repayment purpose. You will be required to provide all information of assets and properties in sole or joint ownership held by you to the Official Receiver during your initial interview session. You are expected to fill out all details about existing debts and complete details about your creditors. You will also be asked to confirm on the debts included in your bankruptcy by the trustee or the Official Receiver. There are certain types of debts that are not included in your bankruptcy like student loans, court fines, state benefits that need to be repaid and child maintenance payments. You need to find alternate modes of repaying the above debts as failure to do so might result in court action.

Assets Sale

The first step towards your debt repayment is the sale of your asset to repay your loans. There are also certain ways by which you can stop or delay sale of your asset through a court order or a mutual agreement with your trustee. In case of sale, the money that is obtained is used to first repay any mortgages or secured loan on your house and the remaining is used to repay debts. In case of the amount being excess of debts, the court can issue an order to cancel or annul your bankruptcy order along with returning the remaining money to you. However, you would lose all the rights and interest on the house property though your bankruptcy is cancelled. Any pension fund or insurance policy benefits or lump sum that you receive are also entitled to be claimed by the trustee towards your bankruptcy estate. The trustee also freezes your bank account and uses any money in it towards debt repayment. You can always seek the help of an individual finance expert to analyse the possible assets that can be claimed before declaring bankruptcy.

Monthly Repayments

Depending on the amount of your debts and your monthly source of income, you may agree to pay an amount determined by the trustee by the income payment agreement or the court may order a monthly payment by means of the income payment order. These orders might continue for a period of 3 years from the date of issue even after completion of your bankruptcy term. The amount of monthly repayment is determined by the trustee based on your monthly necessities and the number of family members dependent on your income. Based on these the trustee will decide if you can take up monthly payments and if yes the maximum amount you can make payment up to. He also determines the years till which they payment need to be made. The Income Payment Agreement or the Income Payment Order is bought in by the trustee to increase the amount of money that can be repaid to your creditors. If in case, you are not able to come in terms with your trustee, you can seek help and advice before you take it to the court.

The payment amount is fixed based on your pare income after deducting expenses for food and bills. The agreement and the amount are monitored by the trustee and can be increased or decreased depending on any changes to your financial status. In case you have a monthly spar income of less than £100 or if you income is majorly from state benefits, then the chances of monthly repayments are very less. In general for any spare amount more than £100, you need to pay a percentage of it towards debt repayment. Spare income amounts up to £250 can liable for 50% and the window of £250-£350 calls for a monthly payment of 60% of it. Similarly spare income in the range of £350-£500 and £500-£600 leads to a repayment amount of 66% and 70% of it respectively.

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