This article covers probably one of the most important subjects to address when considering bankruptcy. One of the hardest things I found to contend with after declaring myself bankrupt was the endless forms which needed filling in. Now, bear in mind, you may well be operating on autopilot after your mind numbing experience in the bankruptcy court and the last thing you want to deal with is a lesson in math, a full on heated discussion with your partner about who spends what and even more horrifying the reality of what life really costs – the truth? You are in deficit before you start. But do not panic. This is in fact a bonus.
This article is written by Joanne Wood who declared herself bankrupt in February 2006. From the age of 17 Joanne worked as a court reporter at the Central Criminal Court. She is the author of Bankrupt 130 of 2006 – a remarkably candid account of what happened to a family after bankruptcy.
You will not be required to pay an income payment order (IPO) for up to three years if there is no cash left in the money pot – Income Payment Order is a regular contribution paid to your creditors at the instruction of the Official Receiver. This order is imposed if you have excess money in your bank account after all domestic expenses have been deducted. So, let’s get this right first time around and, yes, I know you are tired, have no spare time to design flow charts, spreadsheets or so to speak, but if you balls this up then you will have to deal with the consequences – the end result will always be less food on the table.
This is not complex. All you need is a piece of paper, a pen and the patience of a saint. No, I am not being condescending. I have been there. You may be in shock. But trust me, you are now in control. You are making the financial decisions for the next year. Just jot down everything in your life. No, it might sound silly but just record it. You have not done anything wrong. Just because you have declared yourself bankrupt doesn’t mean you stop functioning. List everything: the pet food, the nappies, the chocolate treats, whatever. This is your life and you have a life to live it. You will not be allowed everything, but make sure you list more than you need.
Below are just some of the things I want you to consider when you are confronted with these forms. It’s Okay. Just be honest. Write it all down. It is just a process of elimination for the Official Receiver. At the end of the day it is just too much chocolate or too much toilet roll. Seriously, that’s all it comes down to and even more seriously, I have put both these luxuries back on the shelves in my bankruptcy period. You are fighting for every penny. Be strong. You have a family to feed.
The individual lists below are just a few ideas of how to confront your own personal situations.
Try to adapt these to your own lives. It is paramount that you remember everything. And if you are a self-employed person make sure you remember all of your work outlay, even down to the box of staples or light bulbs in the office. You are entitled to work and the Official Receiver encourages this.
Checklist (For Bankruptcy Only) – The moment you have decided to lodge a bankruptcy petition you must:
Filling in Forms: Checklist
- Open every bill and face the truth.
- Cancel every direct debit in the bank/building society – this will save you charges when they bounce the standing orders, direct debits, etc. – this course of action is also suitable for anyone in a lot of debt, whether considering bankruptcy or not. Bank charges can be the final nail in your coffin unless you take control. The earlier you take this course of action the better it will be on the overall loss.
- If you owe the bank money (overdraft), open another account elsewhere (this will probably have to be a basic building society account) and pay your wages into this account. This way you can control who you’re are paying and the bank will not be able to take all your money before you can get your hands on it.
- Only pay your mortgage, pensions, and buildings and contents insurance. Utilities at an absolute last minute, if the bailiffs are due round. Do not pay any more credit cards or loans or separate endowment policies. It is a waste. Fill up the freezer; buy a second freezer if necessary – you may have more mouths to feed than we do.
- You must ring and book your court dates (these hearings will probably be heard at the county court – ring your local council for details on where the hearings are held and ask for the phone number.) Do this immediately. If you are fortunate enough to win the lottery in the meantime you can always cancel the petition hearing at the last minute. The courts are so busy now it could take several weeks. Ask for the forms to be sent to you via post.
- Spend a lot of time on these forms. Get it right the first time. Fill them in with a pencil first and then in ink as there is a lot to it and you do not want to have to do this again. Keep photocopies of every form you fill in and your list of expenses for future reference. Keep every document/information leaflet sent to you for the full period of your bankruptcy. If you do not understand any of the questions on the form ring up the court and ask for assistance. These forms have to be completed and taken with you on the day of your hearing with your cash payment. A representative will briefly look at them.
Listing your debts
– these will be the first forms to arrive and need to be competed before you arrive at court.
All unsecured creditors must be listed: everything before the date of bankruptcy dies. Make sure you inflate all the sums owed in case you have forgotten any extra interest. When all was said and done, I had added another £20,000 onto the total. It doesn’t matter if that sum is inflated. Whether you go bust for £12,000 or £112,000 makes no difference. At the time of our hearing, I was concerned about the figure. Now I could not care if it had been £1 million, it changes nothing: you are a bankrupt.
You will be asked to supply:
- the name of the creditor (the person you owe money to)
- the creditor’s address
- your account number
- the creditor’s phone number
- the amount you owe – do not forget to add the monthly interest for every month that passes before your hearing date; it soon adds up
You may be lucky and get an early date. Otherwise you may have to wait a couple of months, depending on where you live. If you can use a computer, list all your expenses on a spreadsheet and let the computer do the sums for you. Keep a copy on file if you can.
Look, you are going bankrupt. It is a big price to pay. Try and clean the slate.
The Unsecured Creditors:
(companies or people who do not have a charge over your house)
- credit card companies
- loan companies
- business suppliers
- utility suppliers: gas, electric, water
- council tax
- inland revenue arrears (inflate this amount if you are self-employed because you have no idea what your tax bill is going to be. These are always estimated above what you generally owe. Try and calculate what your next bill would have been for the previous year’s earnings and add it to the overall amount. You won’t have any money to pay it later)
- outstanding VAT and custom and excise penalties
- tax credits that you may have been overpaid
- anyone else you owe money to
The Expenditure Form:
- this may not arrive until after the hearing. Take the whole day out. Send the kids to grandma – you need to be able to concentrate, which will be difficult because you may be in a state of shock.
Expenditure Ideas:
The expenditure form is vital. If you get this wrong, you could end up paying £200 or more a month for three years. Do not be proud; list everything. Here is just an example of some of the things to remember – try to adapt this to your own lifestyles. There are probably dozens of items that are important to your existence – think long and hard on this particular subject. Do not worry if this list exceeds your income. You are going bankrupt and, like many, are already having to live beyond your means to survive basic living costs:
- the children’s music lessons
- school dinner money per child
- school trips, especially for GCSE courses (these can cost up to £500), school donation (non-uniform) days, child’s pocket money
- pet food, vet fees, pet insurance
- eye examinations, prescription drugs, medical therapy, brace treatment for your children which in some cases is now not paid for by the National Health Service (approx cost £2,500); many dentists are now private; add up the basic cost of six-monthly check-ups for each of you and list them (ask for extra in case of treatment – beware, this is limited, but you can only ask)
- dry cleaning, work clothes/uniform or shoes, replacement and repairs
- child care fees
- nursery fees
- nappies/baby milk
- special needs tuition
- school uniform upgrades, school equipment such as calculators (schools insist on special maths equipment and the parents are expected to fund this along with appropriate reading material for children in secondary education)
- MOT for the car, motor maintenance, especially if you use your vehicle for work, car tax, car insurance, parking permit, congestion charges, breakdown cover
- mortgage and mortgage arrears (this is important because they are preferential creditors and have to be paid first. If you think you may want to try keeping your home it is important to keep up these payments throughout the bankruptcy period otherwise you could be repossessed.)
- arrears on secured loans (again these are important to avoid repossessing of your home during the bankruptcy period )
- annual home boiler insurance or boiler maintenance
- coal/logs for the fire/cash for the gas, electricity meter
- private petrol (school runs, to and from sick parent/general)
- shopping budget (do not be shy here; remember, if you do not socialise much, include your wine/cigarettes/take away food and chocolate stash in the total cost – the Official Receiver’s Office do have set allowances, but it varies on the amount of people living in your house; I had to point out that I had teenagers, one in excess of six foot, and would be grateful if they allowed adult portions when calculating my shopping budget – we all know how much teenagers eat. They did allow what they described as a ‘social allowance’, but as we had ceased entertaining ourselves, due to lack of funds, this seemed quite daft; basically, it was added to the shopping budget. Go all out here – you have nothing to lose; and remember, many unexpected expenses will crop up during the bankruptcy period and are always paid for out of this shopping allowance.)
- TV licence
- clothing per person per month
- hairdressing for all of you (grooming is important for your job)
Yes, it is true. The Official Receiver will not allow everything. But you have got to live, and you do not want to be placed further into debt. And contrary to what I first believed at the time of my own bankruptcy, the OR is in fact quite human.
Remember the Office Expenses.
It is vital that you continue running your business. Multiply this by 2 if both you and your spouse are working.
- showroom/office rent
- phone lines/fax lines/computer hosting fees
- computer technical support
- electricity/gas/water and light bulbs
- stationery/postage/photocopier ink cartridges for all machinery and copier paper
- replacement for equipment, such as computer / printer / fax / copier / telephone / mobile
- stock, depending on your business – perhaps kitchen / food / catering / joinery tools / equipment insurance
- petrol / car / maintenance / AA car cover / parking costs
- pay-as-you-go mobile phone / hands-free headset / phone charger / phone insurance
- laptop computer for all working parties / insurance and protection cover
- lunch expenses for you and your partner if you are both out working
- railway / tube / bus expenses
- broadband Internet costs for office
- work suits, overalls or uniform and dry cleaning costs
- accountancy fees
- National Insurance stamps
Prepare letters in advance – leave unsealed; write to all creditors listed that you have gone bankrupt, and after your hearing enclose a copy of your bankruptcy notice and post as soon as possible; the Official Receiver is so busy it will take him weeks to contact everyone; if you do this yourself the phone will stop ringing sooner.
Also photocopy your bankruptcy petition; just in case there is a visit from the bailiffs, you can offer them the document and ask them politely to leave your property.
If bankruptcy is not the appropriate choice:
(use these lists as a guide only): Instruct an insolvency firm to deal with your affairs or, alternatively, someone who can advise a suitable remedy to your problems. Get advice from at least three separate firms if you can. The first consultation is normally free. Obtain as much free guidance as you can before making your decision. Also, ring the debt agencies, because they do offer useful tips, for instance, informal debt management agreements.
