Been declared bankrupt and need some advice please

[bankrupt]

Hi Everyone,

I ran my own company for 10 years but sadly it's failed and I've been personally declared bankrupt.

I've had some advice on the consequences of this and I've done plenty of research, but I'm struggling to get an answer on a couple of things.

I potentially still have the ability to earn a good salary. The downside of this is that I will then be subject to a payment order for 3 years so the additional stress etc. that goes with that kind of job doesn't seem worth it as anything over and above my reasonable living costs will go to creditors. If I take a lower paid job, I can be free and clear after 12 months. My question is, what happens with say an arrangement whereby I salary sacrifice into a pension scheme or forego basic salary for say a bonus later on? Is that doable or will the OR disallow such an arrangement? I'm not currently employed but am looking at getting back into work shortly, so I'm in the unusual position of considering whether to work part time, or take a more junior role for example, which the OR is fine with. When it comes to how much they will take over and above normal living expenses however, they are uncooperative. I don't want to do anything that breaks the rules, but equally having lost everything as it was all tied up in my business, I want to get back to normal as quickly as I can.

Thanks in advance for any help and advice.

 

[Newchodge]

Hi Everyone,

I ran my own company for 10 years but sadly it's failed and I've been personally declared bankrupt.

I've had some advice on the consequences of this and I've done plenty of research, but I'm struggling to get an answer on a couple of things.

I potentially still have the ability to earn a good salary. The downside of this is that I will then be subject to a payment order for 3 years so the additional stress etc. that goes with that kind of job doesn't seem worth it as anything over and above my reasonable living costs will go to creditors. If I take a lower paid job, I can be free and clear after 12 months. My question is, what happens with say an arrangement whereby I salary sacrifice into a pension scheme or forego basic salary for say a bonus later on? Is that doable or will the OR disallow such an arrangement? I'm not currently employed but am looking at getting back into work shortly, so I'm in the unusual position of considering whether to work part time, or take a more junior role for example, which the OR is fine with. When it comes to how much they will take over and above normal living expenses however, they are uncooperative. I don't want to do anything that breaks the rules, but equally having lost everything as it was all tied up in my business, I want to get back to normal as quickly as I can.

Thanks in advance for any help and advice.

You don't want to do anything to break the rules, unless you can receive more than the OR deems reasonable and hide it in a pension pot or delay receiving it until you can keep it all? There appears to be a bit of a mismatch there.

 

[DontAsk]

Sounds like the difference between avoidance and evasion. If the rules allow such avoidance then it's fair game. Unfortunately I don't have the answer to that.

 

[pentel]

If I take a lower paid job, I can be free and clear after 12 months.

This sounds like a plan, take the time away from the stress to evaluate where you go from here.

12 months seems like a long time but it will soon go by.

 

[Annoying Donkey]

So you've had the benefit of the money borrowed, but you want to avoid paying it back...?

 

[bankrupt]

You don't want to do anything to break the rules, unless you can receive more than the OR deems reasonable and hide it in a pension pot or delay receiving it until you can keep it all? There appears to be a bit of a mismatch there.

I'm afraid you are mistaken. I have already offered to split anything above my essential living expenses 50/50 which was rejected. I am currently unemployed and reviewing my options. One option is to work for as much as I can, involving lots of stress and long hours in order to give the OR 100% of my excess income. That may be the moralistic approach that you want me to take, but it is certainly not the only one. I want to do whatever I can within the law. Not break it. Bankrupts are perfectly entitled to contribute into a pension scheme, but the OR refuses to tell me what percentage of my salary they would deem acceptable. I have had several roles where I have been paid what you might call an "assignment completion bonus", not to avoid anything but because that was the terms. Terms like that might be favourable to me or not, I don't know, the OR won't say, but in any event, there is no mismatch. I have a desire to play within the rules, but it's been hard to find out exactly what those rules are. I'm not looking to "hide" anything. The OR has already said my offer is reasonable, but legislation prevents them taking it. Another department apparently deals with IPA's and I'm perfectly entitled to take whatever job I want. I would rather be a productive member of society but if that's to my significant detriment then I will take a job with less hours or pay, which the OR has informed me is well within the rules. Asking where the rules lie and what's possible isn't underhand or immoral. It's no different to one of your clients asking you how much they can get away with paying for a certain role. would it be wrong to ask what the minimum wage is for example? I don't think so.

 

[bankrupt]

This sounds like a plan, take the time away from the stress to evaluate where you go from here.

12 months seems like a long time but it will soon go by.

Many thanks, nice to see someone on here who isn't judgemental.

 

[bankrupt]

So you've had the benefit of the money borrowed, but you want to avoid paying it back...?

yes of course. Or maybe, I took out a business loan just before covid. Maybe having taken that out I kept employees on so they didn't lose their homes. (The industry I was in I was prevented from furloughing staff). Of course I'm sure my wife who worked for me intentionally got breast cancer. I had to continue paying her and a replace her. Of course, I also deliberately developed a heart problem needing a stent to be fitted and for me to have to take time off. I've been made bankrupt because I took the risk of having my own business which I ran successfully for 8 years. I secured that loan personally and rather than arrange a payment plan, they called the guarantee in and bankrupted me when I couldn't settle immediately.

I wish I did have the benefit of that money. it certainly wasn't spent on a holiday to St Trapez. As anyone who has any knowledge of bankruptcy will know, it's not the easy option, it's the hard one. I've a lost a significant amount of money, more than likely my home too and any savings I had. Perhaps you should think before you post, particularly when you know nothing about it and the only point to your post is to sit in your ivory tower and pass judgement on others.

 

[clyde123]

Sometimes you need to make your health your top priority. I have no doubt that no matter what you do in the next couple of years, there's going to be a lot of stress.
What if you take a high responsibility job, then you find you must take time out to deal with the after effects of the bankruptcy. There's no benefit in making more stress than necessary.
Having been your own boss for years, then having to 'do as you're told' can be very hard. It would be bad for you if you ended up unable to cope.
Difficult as it may be to accept change of lifestyle, perhaps the best advice is to take care of your health, including mental health. A year or two looking after number one for a change might just set you up with the oomph again for a more certain future. Be very careful about taking on committments you'll find very difficult to meet.

 

[Annoying Donkey]

yes of course. Or maybe, I took out a business loan just before covid. Maybe having taken that out I kept employees on so they didn't lose their homes. (The industry I was in I was prevented from furloughing staff). Of course I'm sure my wife who worked for me intentionally got breast cancer. I had to continue paying her and a replace her. Of course, I also deliberately developed a heart problem needing a stent to be fitted and for me to have to take time off. I've been made bankrupt because I took the risk of having my own business which I ran successfully for 8 years. I secured that loan personally and rather than arrange a payment plan, they called the guarantee in and bankrupted me when I couldn't settle immediately.

I wish I did have the benefit of that money. it certainly wasn't spent on a holiday to St Trapez. As anyone who has any knowledge of bankruptcy will know, it's not the easy option, it's the hard one. I've a lost a significant amount of money, more than likely my home too and any savings I had. Perhaps you should think before you post, particularly when you know nothing about it and the only point to your post is to sit in your ivory tower and pass judgement on others.

I've been bankrupt and I would have sympathy... except:

I potentially still have the ability to earn a good salary. The downside of this is that I will then be subject to a payment order for 3 years so the additional stress etc. that goes with that kind of job doesn't seem worth it as anything over and above my reasonable living costs will go to creditors.

To me this read that you don't want to repay money you borrowed...

I agree with others that you should prioritise health over anything, however if you're capable of working and repaying some or all of the money, then morally you should IMHO.

 

[bankrupt]

I've been bankrupt and I would have sympathy... except:



To me this read that you don't want to repay money you borrowed...

I agree with others that you should prioritise health over anything, however if you're capable of working and repaying some or all of the money, then morally you should IMHO.

I also offered to give 50% of anything over and above my reasonable living costs to creditors. This was refused out of hand. 50% of something is better than 100% of nothing. That was in my original post as well. You are very selective on which parts of my post you comment on. Bankruptcy is not a punnishment, it's an admission of being unable to pay 100% of your debts.

I don't have a job, in fact I've just lost a job I was offered because I notified them of the bankruptcy. I'd already worked 3 days and I had an agreement in place to salary sacrifice pensions. This is a tax efficient way of providing for retirement although that may not sit well with you morally, it's perfectly legal and not at all underhand. I'm not looking at doing anything I wouldn't have done had I not been made bankrupt. The insolvency act 1986 allows for pension contributions, but says excessive contributions can be clawed back by the OR without defining excessive. Given that my pension pot is also down 1/4 of a million due to my business failing, I was after advice. Not your sympathy and certainly not your judgement.

 

[Tim James]

I've never been bankrupt but I've had some scary moments in business. At times I had felt like going bankrupt would have been an easier choice than taking years to pay back all that I owed. I really feel for you, especially with your wife's cancer and your own illness. I do hope you get some peace now.

My suggestion would be to take it easy for a while - take on a job which has little stress and allows you to refocus and get your health back on track. 12 months will fly by, and then you can make some decisions as to whether you want to take on a better paid job or even start up your business again.

Best of luck

 

[Gyumri]

I also offered to give 50% of anything over and above my reasonable living costs to creditors. This was refused out of hand. 50% of something is better than 100% of nothing.

You're absolutely right. The only creditor I know who can afford to turn their nose up at reasonable offers is HMRC. Most trade creditor would prefer to have something rather than nothing.

I would forget all about pensions for the time being (although I am surprised that the OR can't get his teeth into your pension pot) and study the law about what the OR can and cannot do and what you as the bankrupt can do to improve your position or at least make your life less stressful.

Don't start thinking about how you can skirt around the bankruptcy laws but be transparent with the OR and try to obtain his cooperation.

You are lucky that in the UK bankruptcy lasts for only 12 months.

 

[Annoying Donkey]

The insolvency act 1986 allows for pension contributions, but says excessive contributions can be clawed back by the OR without defining excessive.

My understanding is anything in excess of 15% of salary is excessive and may be clawed back...

In my experience OR are generous with regard to living expenses, but not excessively so...

Be aware 12 months is the default, however OR can extend this if they feel it's justified...

Maybe post in insolvency sub forum for further advice.

Legal, Employment and Insolvency

The forum for all legal questions including employment, insolvency and contracts.

www.ukbusinessforums.co.uk

 

[Lisa Thomas]

I haven't read all the replies so apologies if I am repeating something.

The answer you want might be in here:

Technical guidance for Official Receivers - 35. Income Payment Agreements and Orders - Guidance - GOV.UK

Obtaining Income Payments Agreements (IPA) and Income Payments Orders (IPO) from bankrupts, including the matters to be taken into account when calculating the sum to be paid

www.gov.uk

 

[MikeJ]

Without knowing what work you do or have been offered, you may be better off doing the higher paid job as soon as possible. You'd be building your career again, and probably get more money once you're out of your bankruptcy period,

 

[SillyBill]

yes of course. Or maybe, I took out a business loan just before covid. Maybe having taken that out I kept employees on so they didn't lose their homes. (The industry I was in I was prevented from furloughing staff). Of course I'm sure my wife who worked for me intentionally got breast cancer. I had to continue paying her and a replace her. Of course, I also deliberately developed a heart problem needing a stent to be fitted and for me to have to take time off. I've been made bankrupt because I took the risk of having my own business which I ran successfully for 8 years. I secured that loan personally and rather than arrange a payment plan, they called the guarantee in and bankrupted me when I couldn't settle immediately.

Really, none of this needs to be said, creditors are real people too with all the same things happening to them too (noone escapes the challenges of life), the only difference is they are dealing with all the same life issues while now being out of pocket as well.

The fact you potentially won't take a higher paid job to ensure these people get something back is not an impressive statement of character, clearly you have a choice. I have strong views on this and don't much care if upsets, it should be a very tough climb out of this for good reason. Hopefully now your health is improved, you may consider carefully and decide a course of action that may alleviate the hardship of those who supported you financially through everything you mentioned, even if its pence in the pound.

 

[Gyumri]

The fact you potentially won't take a higher paid job to ensure these people get something back is not an impressive statement of character, clearly you have a choice.

As far as I can read the OP is not one of those fly-by-nights who deliberately take creditors for a ride and then sit back for 12 months taking it easy while their creditors have to suffer.

The OP in fact personally put his head on the chopping block by guaranteeing a business loan which helped to keep his workforce in gainful employment - but the business was not successful and the lender instead of agreeing to accept reasonable repayment installments called in the loan.

Further information on the OP's current position in relation to the OR is here:

https://researchbriefings.files.parliament.uk/documents/SN05271/SN05271.pdf

 

[Annoying Donkey]

As far as I can read the OP is not one of those fly-by-nights who deliberately take creditors for a ride and then sit back for 12 months taking it easy while their creditors have to suffer.

The OP in fact personally put his head on the chopping block by guaranteeing a business loan which helped to keep his workforce in gainful employment - but the business was not successful and the lender instead of agreeing to accept reasonable repayment installments called in the loan.

Further information on the OP's current position in relation to the OR is here:

https://researchbriefings.files.parliament.uk/documents/SN05271/SN05271.pdf

How is "50% of anything over and above my reasonable living costs to creditors." reasonable...?

 

[Lisa Thomas]

I'm not sure where the quote has been extracted from but 50% over the reasonable living costs etc implies the bankrupt would get to enough money to pay all their necessary living expenses AND get to keep 50% of anything over that.

That's more than reasonable imo, given they have written off probably 100% of their debt, and only have to pay back what they can afford over 3 years to contribute towards the costs of the Bankruptcy, and potentially pay a dividend to creditors.

 

[Newchodge]

I'm not sure where the quote has been extracted from but 50% over the reasonable living costs etc implies the bankrupt would get to enough money to pay all their necessary living expenses AND get to keep 50% of anything over that.

That's more than reasonable imo, given they have written off probably 100% of their debt, and only have to pay back what they can afford over 3 years to contribute towards the costs of the Bankruptcy, and potentially pay a dividend to creditors.

It comes from the OP's post #6 and is, I think, the OP's suggestion, not the OP's. When you say more than reasonable I assume you think it is the OR's proposal?

 

[Lisa Thomas]

Ah, thanks for clarifying, Cyndy.

No, Annoying Donkey seemed to challenge that it wasn't reasonable and I disagreed.

I was surprised the 50% figure was being banded about. It's something you might hear proposed in an IVA, but not Bankruptcy.

 

[Annoying Donkey]

No, Annoying Donkey seemed to challenge that it wasn't reasonable and I disagreed.

I was surprised the 50% figure was being banded about. It's something you might hear proposed in an IVA, but not Bankruptcy.

Well, you're more generous than my IP...

And in my, admittedly limited experience, more generous than HMRC, Councils (as in Council Tax), Banks and perhaps most creditors.

I wonder if the creditor would've offered the loan if OP had've said up front that he wouldn't make any attempt to repay if he didn't feel like it...?

 

[Newchodge]

Well, you're more generous than my IP...

And in my, admittedly limited experience, more generous than HMRC, Councils (as in Council Tax), Banks and perhaps most creditors.

I wonder if the creditor would've offered the loan if OP had've said up front that he wouldn't make any attempt to repay if he didn't feel like it...?

Can I point out to both you and @Lisa Thomas That 'reasonable' has 2 faces. I think both of you are thinking 50:50 is not reasonable for the creditors and more than reasonable for the debtor.

 

[Annoying Donkey]

Can I point out to both you and @Lisa Thomas That 'reasonable' has 2 faces. I think both of you are thinking 50:50 is not reasonable for the creditors and more than reasonable for the debtor.

Well, the most important party, the OP's creditor, clearly didn't think it reasonable...

 

[Mattymoomoo]

This sounds like a plan, take the time away from the stress to evaluate where you go from here.

12 months seems like a long time but it will soon go by.

At the risk of annoying others here, I agree 100% with this. Go travel, maybe study, get ready to start again with the lessons you learned. The reality is you borrowed money, those that risked it presumably knew what they were doing, presumably you did your best and it didnt work out. Dont work yourself into the ground just for someone else. I suspect if there was a threshold you met and they cleared your bankruptcy, my view would be different. I dont buy any moral argument if everything has been above board. There is a reason our legal system is setup the way it is.

 

[Lisa Thomas]

Well, the most important party, the OP's creditor, clearly didn't think it reasonable...

If the debtor is bankrupt, and the creditors were getting a 50p in the £ dividend, that's huge.

Although the suggestion of 50% of any surplus to go to creditors doesn't take into account costs, and preferential creditors in bankruptcy. But in general, it's more than reasonable. Bankruptcy often means nothing back for creditors.