MONEY TRICKY TRICKS : BANKRUPTCY, THE VERY LAST RESORT (AND HOW TO AVOID IT)

Depending in which country of the United Kingdom you live in the procedures and implications of bankruptcy vary. In Scotland it is a fairly straightforward process whereas in England and Wales the procedure is much more complicated. In Northern Ireland the process is different again.

Although personal bankruptcy is possible in England in Wales it is seldom used because of its complex nature. If you have debts arising from running a business, rather than personal debts, it is quite possible that you will be forced into bankruptcy, but that is a whole different situation and is outwith the scope of this guide where only personal debts are considered.

In England and Wales instead of bankruptcy, it is more usual to enter into an Individual Voluntary Agreement. This is a process where the debtor agrees to allow the court to appoint a supervisor who will take charge of the case and see that creditors are dealt with equitably. If it becomes necessary for goods to be seized and sold, the supervisor will divide the proceeds between creditors, after court fees have been paid.

If it is possible to avoid going as far as an IVA you can have the court issue an Administration Order. Here an administrator will take a monthly payment from you and distribute it to your creditors. This process will save you from having any of your property seized provided that you can keep up the monthly payments to the court. If you are being taken to court by one or more creditors, you may wish to consider this option.

The Bankruptcy (Scotland) act (1985) has as its main provision that once debt exceeds £750, either the creditor or debtor (or both) can petition the control and distribution of the debtor's assets by a trustee. This will involve no new actions against the debtor and liabilities will be discharged after three years.

Debt recovery in Northern Ireland is regulated by the Payments for Debts Act (1971) and the Judgements Enforcement Act (1969). The former allows deductions from any statutory benefit for any statutory debt. You can have money deducted at source from wages or state benefits to pay your creditors.

The Judgements Enforcement Act provides for an enforcements office (EJO) to which creditors apply once they have a judgement from the courts. Once the debtor's case is accepted the EJO interacts with the debtor and decides the appropriate methods of recovery. Where the debtor has insufficient means, a certificate of unenforceability can be issued. This is technically the same as bankruptcy.

If you are forced into, or decide voluntarily to apply for, bankruptcy, all your disposable assets, with the exception of some basic necessities such as a bed, clothing, tools of your trade, cutlery, crockery, etc., will be seized and sold at auction to raise funds towards payment of your debts.

If you are forced into bankruptcy anywhere in the UK, your debts are automatically discharged after 3 years and you can start with a 'clean slate'. The exceptions to this are :

Secured creditors, where, if your home has been sold you are liable for any shortfall between the selling price and the amount you owe. You are also liable for interest until the debt has been discharged.

Fines, maintenance orders and family court orders.

Claims made against you for causing personal injury.

Debts incurred through fraud.

Any matter upon which the trustee is still working.

If you own your own home it is possible that you can keep this. Largely this will depend on the equity of the property. If the home is valued at much more than you owe to the mortgage company, you may be forced to sell to release the equity. If there is little or no equity, or indeed negative equity, on the home then, providing that you continue to make mortgage payments, there is every chance that you will not be forced to sell. It is only the case where there is equity tied up in your property that anyone other than your mortgage lender can force a sale anyway.

If you are unemployed and have your mortgage interest payments made directly by the DSS, and your house value is around the same as the outstanding mortgage it is unlikely that you will be forced to sell. One problem which you may have in this situation is that the endowment policy for your home (interest only endowment mortgages) will still need to be paid and the DSS will not offer assistance with it.

If you are in rented accommodation you may have a lease which states that a bankrupt is not allowed to be a tenant and your landlord could force an eviction if this were the case. Also, even if there is no mention in the lease of bankrupt tenants being disallowed, your landlord may force you out because he feels it will be impossible to recover rent arrears from a bankrupt. In this case you will have to apply for specialist housing advice. See your local council housing department about this.

Anyone who is bankrupt will not be allowed (until after discharge) to have credit of more than £250 - you will find it almost impossible to get any credit at all though.

You should try and keep a bank account because as a bankrupt you will be unlikely to even be able to open one of these.

Although the debts are discharged after three years you may well find it almost impossible to get any kind of credit for a period of six years after the issue of the bankruptcy order, because this is the period of time that the credit reference agencies will keep your details on file.

So, all in all, particularly in England & Wales, bankruptcy is best avoided if at all possible. If you closely follow the advice given in this guide then you should be able to avoid bankruptcy. Even your creditors will not want to force you into bankruptcy in all but the most unusual of cases. They are fully aware that if you become bankrupt they are unlikely to get anything but a very small percentage of what is owed to them and are much more inclined to accept reduced payments, particularly in the hope that your situation will improve.

MONEY TRICKY TRICKS : WHAT ABOUT THE FUTURE?

Once you have made arrangements to pay debts at a small fraction of the original instalments, whether through a court or directly with your creditors or debt collection agencies, and have made payments over a period of time, it is worth considering making an offer for full and final settlement.

If you are paying only a tiny portion of the original instalment and your creditor knows that the debt will take years to clear, they will often accept a small portion of the total amount outstanding to fully discharge the debt.

MONEY TRICKY TRICKS : ARE YOUR ENTITLED TO HELP FROM THE STATE?

If you become unemployed and have no other source of income then you will be entitled to a range of benefits from the state to help you deal with the hardship of having no salary or wage.

Because the range of benefits available, from a variety of sources, is vast and because legislation changes with great frequency it is pointless to attempt to give detailed advice about what is available and what you may be entitled to.

MONEY TRICKY TRICKS : DON'T MAKE ENEMIES OF YOUR CREDITORS

You must do all you can to keep your creditors on your side. The best course of action is to contact any creditor you have as soon as you know you are going to have a problem keeping to the schedule of repayments originally agreed.

You can telephone them, and most will be very helpful. Because of the large number of people who have got themselves into a problem with credit and end up having to make reductions in instalments, they will certainly not be surprised when you contact them to discuss your situation.

MONEY TRICKY TRICKS : THE NEED TO PLAN

The most important thing in any situation where things become unmanageable is to get a clear picture of the situation and do everything in your power to set things straight. Never ignore the problems....they won't go away!

If you are in the unfortunate position of having more credit than you can repay at the original agreed rates then you must make arrangements to have these rates substantially reduced, so as to turn the situation from one of apparent hopelessness into one which you can handle.

As you will be told in any publication that offers advice to people with debt problems, you must first get a wholly clear picture of your situation and then formulate a strategy for dealing with it.

The first step you should take is to make a list of all the money you owe. This should include everything, even money owed on a casual basis. This will give you a realistic overall picture of the extent of the problem.

When you have listed all your debts, including your mortgage if you have one, you should then make a list of the repayment instalments which were originally agreed. Once you've made such a list you should add all the amounts together to arrive at a figure for your monthly outgoings.

Also, calculate the amount you need to spend each month on the necessities of life; food, clothing, etc. Add this to the monthly outgoings figure from all your credit. If this figure exceeds your total monthly income, then you don't need to be a genius to work out that you are in a financial situation which is most definitely problematical.

By writing down all your incomings and outgoings as suggested above, you should immediately feel some sense of relief that at least you are beginning to address the problem. As the old saying goes - "A problem recognised is a problem halved".

Of course the "half" of the problem which is "solved" by arriving at the stage of it being properly recognised in the first place is, obviously, the easy half. The other "half" of the problem is the part which is going to take some effort to overcome.

When you explain your reasons to creditors for the difficulties you are having in keeping up payments they will much more often than not handle your case in a reasonable and sympathetic fashion. Believe me, they are used to hearing from people with repayment problems.

MONEY TRICKY TRICKS : WHEN THINGS GET OUT OF HAND - THE PROBLEMS OF REPAYMENT!

Being in a situation where the repayments on the money you owe amount to more than the money you have coming in is a situation which no one wants to find themselves in.

However, even in cases where a debtor has been very prudent to not borrow beyond his or her means, there can be unforeseen changes in circumstances which can suddenly change the situation from one of manageable proportions to exactly the opposite.

MONEY TRICKY TRICKS : HUGE PROFITS FROM PROPERTY DEALS - USING OTHER PEOPLES' MONEY.

More fortunes have been made in property than any other area. This is the case for most countries in the world, and certainly for all the economically highly developed countries. The great majority of people fail to make fortunes in property dealing because they imagine that it takes a great deal of expert knowledge and experience and a lot of capital.

Naturally, having capital of your own for any business venture, whether it be property, manufacturing or the provision of a service, would be a good thing. But you may be surprised to know that the vast majority of people who have created vast wealth for themselves through property buying and selling, have done so with money which is not theirs.

MONEY TRICKY TRICKS : A LOAN WHICH IS GUARANTEED BY THE GOVERNMENT.

Because our government is concerned to promote exporting of British goods to overseas markets there is a great deal of government sponsored finance available to the firm or individual who wishes to sell British goods to overseas customers.

The government runs an export credit programme which provides insurance against political and commercial risks involved when selling to foreign buyers and to maximise the attractiveness of terms offered to overseas customers.