Annulment of Bankruptcy

In the world of personal insolvency the annulment procedure applies to bankruptcy only. Only the court has the power to order the annulment or cancellation of a bankruptcy order that has already been made.

Annulment releases the bankrupt from the restrictions placed on him or her by insolvency law and renders him or her no longer bankrupt with immediate effect. Annulment can be sought at any time, even after the bankrupt has received discharge from bankruptcy.

Why would a bankruptcy order be annulled? There are three principal reasons chief of which is that there was a valid reason why the bankruptcy order ought not to have been made in the first place. The second reason is that the debts and expenses of the bankruptcy have either been paid in full or secured to the satisfaction of the court. The third reason is that the bankrupt has with the approval of creditors entered into an Individual Voluntary Arrangement (IVA) or into a Fast-track Voluntary Arrangement (FTVA).

Generally the bankrupt (or representative) must apply to the court for an annulment of the bankruptcy order. One exception is where the petitioning creditor’s solicitor makes the application in circumstances where their client failed to notify them that the debt had been paid in full prior to the bankruptcy. The court then sets a date for the hearing.

Visit the website of The Insolvency Service Website for a full description of the process of annulment of a bankruptcy order and find the section entitled Annulments, Rescissions and Recalls.

Qualifying for a Debt Relief Order

It is relatively easy to determine if you are eligible to apply for a Debt Relief Order. First of all you must be currently resident in England or Wales or, at any time in the last three years, have been resident or carrying out business in England or Wales. A Debt Relief Order is an informal insolvency process that has been designed specifically for people who are unable to pay their debts which in total must not exceed £15,000. To apply for a Debt Relief Order there are other conditions you must fulfill.

The first condition is that you have no assets. What this means in practice is that your total gross assets must not exceed £300 apart from a vehicle necessary for travelling to your work or for your domestic needs and which may have a value of up to £1,000. Your surplus income, i.e. what you are left with when you have paid your normal living expenses, must not exceed £50 per month. There must be no other access to debt relief open to you and there must be no prospect of your financial situation improving.

A Debt Relief Order is not an appropriate situation for you if you have assets or if there is a possibility of an improvement in your financial circumstances.

If you have already been subject to a Debt Relief Order within the last six years, then you are ineligible to apply for another one.

You are also ineligible to apply for a Debt Relief Order if you currently involved in another formal insolvency procedure such as bankruptcy, an individual voluntary arrangement, a bankruptcy restrictions order or undertaking, a debt relief restrictions order or undertaking or an interim order. You are also ineligible for a

Debt Relief Order if you are currently petitioning for bankruptcy (unless the court has referred you to the Debt Relief Order procedure as a more suitable method of debt relief) or if a creditor is currently petitioning for your bankruptcy (unless that creditor has given you permission to apply for a Debt Relief Order.

If you believe you are eligible for a Debt Relief Order, then you must seek advice from a debt advisor, who will help you to apply to The Insolvency Service which together with skilled debt advisers, called approved intermediaries, run the system of Debt Relief Orders. You cannot apply for a Debt Relief Order without the assistance of an approved intermediary. The cost of a Debt Relief Order is £90 which can be paid upfront immediately or if you cannot afford to pay immediately, can be paid over a maximum of a six months period. Once the fee is paid in full, the official receiver will consider your application.

Once the Debt Relief Order is granted, your creditors cannot take any action against you for repayment without the permission of the court. After twelve months, your debts, as listed in the Debt Relief Order, are discharged, leaving you free of those debts forever.

While in a Debt Relief Order you are subject to certain restrictions and of course there are certain debts that cannot be entered into a Debt Relief Order. As well as that, details of your Debt Relief Order are put up on the website of The Insolvency Service and are removed three months after your Debt Relief Order has ended.

What is a Debt Management Plan?

A Debt Management Plan is an informal and flexible approach, the purpose of which is to resolve personal debt problems where the debtor has difficulty in repaying debts as they fall due. In a Debt Management Plan creditors can expect to be repaid in full over a period of time.

The rate at which creditors are paid is based on what the debtor can afford on an ongoing basis. Some Debt Management Plans can last for years and the duration of a Debt Management Plan depends on the debtor’s personal financial circumstances. Should you choose to engage a debt management company to assist in putting a Debt Management Plan together, it can estimate how long the Plan will last, once you have provided the necessary information on your financial and personal circumstances.

Of course you don’t have to use a third party to enter into a Debt Management Plan with your creditors. A person can put one together themselves, offer it to creditors and negotiate with creditors to reach agreement on the plan. Such a person can administer their own Debt Management Plan and deal directly with their creditors on an ongoing basis.

This type of Debt Management Plan is sometimes called a self administered Debt Management Plan or a or a DIY Debt Management Plan. However, most persons who enter a Debt Management Plan do engage the services of a debt management company or they may seek help from one of the organisations which offer free advice or assistance and whose running costs are sometimes usually by creditors. If you decide to use a commercial debt management company to assist you, make sure that you ask them to explain the full range of financial solutions that may be available to you.

Because a Debt Management Plan is an informal process, your creditors cannot prevent you from obtaining further credit while your Plan is up and running. However, it is against the spirit of the plan that you should do this. Creditors who may have agreed to accept your Plan in the first place will almost certainly reject it if they learn that you have broken the spirit of the agreement in this way. This is because when you entered the Plan, you committed to use all of your disposable income to address and repay your pre-existing debts and not to increase your indebtedness any further during the term of your Plan.

All unsecured debts such as loans, credit cards, store cards and bank overdrafts are covered in a Debt Management Plan and you expect to repay all of these debts over time. On the other hand, your secured debts such as your mortgage or any HP agreement you may have, are prioritized in your income and expenditure calculations, so that you do not fall behind on these payments. These secured debts have to be paid in full on an ongoing basis and you cannot fall into arrears with any of them.

The advantages of a Debt Management Plan can be summarized as follows: creditors often prefer Debt Management to any other debt repayment process, other than of course repaying all of your debts fully as they fall due in accordance with the terms and conditions of your original credit agreement with them; you do not necessarily have to release any equity from your property; you will repay all of your debts over time, provided you adhere to the payment plan you have agreed to; your financial details will not be published on the Insolvency Register; you only pay what you can afford and the Debt Management Plan is designed to suit your personal circumstances and needs. Remember however that creditors do not have to accept reduced payments or freeze interest and charges and there is no guarantee that any existing or threatened proceeding will be suspended or withdrawn and if your creditors have incurred any collection costs, they will normally be added to your debt.

If you use a commercial debt management company to administer your Debt Management Plan you will have to pay fees to them. These fees vary somewhat from one company to another. Typically a Debt Management company charges a set up fee equal to your first monthly payment into the Debt Management Plan, which means that creditors receive nothing for the first month. Thereafter, charges are usually a fixed percentage of your monthly payment. The average monthly charge is 15% with a minimum of around £25 per month and a maximum of around £100. As you shop around, you will find that charges may vary.

Entering a Debt Management Plan does negatively affect your credit rating although it may already have been affected if you have already accrued arrears on any of your accounts or if you have a history of missed payments or late payments. Your debt management company negotiates reduced monthly payments to your creditors and this means that you will no longer be making the payments originally agreed. Thus the original contracts into which you entered with your creditors will be broken. Notes of these defaults may and probably will be made on your credit file. The credit reference agencies retain default records for six years.

Because Debt Management is flexible and informal, it is not as rigid as other processes and so the process can react quickly if you encounter a sudden change in your circumstances, for better or for worse. If this happens, you should contact the company administering your Debt Management Plan and inform them of any such changes. They can contact your creditors, communicate any issues that arise from your changed circumstances and propose solutions that satisfy both you and your creditors.

While most people who enter Debt Management are employed they do not necessarily need to be, provided they have a source of income that is more than they require for living expenses. However, people who have recently become unemployed and who are actively seeking employment can consider offering their creditors a short term Debt Management Plan, particularly when they have good prospects of obtaining employment with a reasonable level of disposable income. Even people whose entire income is comprised of benefits can offer Debt Management to their creditors but since their level of disposable income is likely to be low, it may well be that an alternative solution such as bankruptcy or perhaps a Debt Relief Order might be a more suitable and appropriate solution. Other solutions to financial difficulties which should be considered include Individual Voluntary Arrangements or IVAs, Debt Consolidation, Asset Sale & Debt Settlement and Property Remortgage & Debt Settlement. The possibility of financial assistance from a family member or friend should not be overlooked.

Reputable debt management companies offer complete confidentiality and privacy in relation to your DMP. No information about you is disclosed to any outside organizations including your employer. Particular care is taken when making contact with you to ensure that others will not find out about your circumstances. Obviously you need to behave discreetly yourself in your communications with your creditors and with your debt management company to ensure that your employer does not become aware of your Debt Management Plan inadvertently.

Insolvency is not a requirement for entering Debt Management. It may be that your income combined with your assets is sufficient to pay off your debts in full in accordance with the terms of your contracts with your creditors. For example, you might have sufficient equity in your property to pay your debts when your income is taken into account but if you cannot obtain a re-mortgage, you might have to sell your home to realize that equity. Debt Management might provide a means of postponing the sale of your home or giving you some breathing space until such time as you can obtain a remortgage on reasonable terms.

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