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The Bankruptcy Service - Case Studies

The following bankruptcy case studies are fictitious examples, designed to help you understand working situations where bankruptcy is and isn't appropriate.

Case Study #1

Mr S is a builder; he is 34 years old, and has a monthly salary of £1,400. He and his girlfriend share a flat, which they rent for £500 per month.

Three years ago, when the economy continued to take a downturn, and the building profession was hit hard, Mr S struggled to find jobs, and was forced to borrow more and more on credit cards. Mr S already had existing loans, store cards, and credit card, so the situation only served to negatively impact his finances, as the monthly bill grew and grew. With only sporadic income, Mr S didn’t have another option, as job seeker’s allowance did not cover his existing bills and debt combined.

At the time of seeking help, Mr S had accumulated £12,000 debt, and owed this to 11 different creditors. The situation meant that he now also had arrears on his water bill.

The Solution

Bankruptcy was advised as the best option for Mr S, for the following key reasons:

  • There was no surplus income, even when he had a temporary job, so there was no realistic means to repay any amount to the creditors.
  • The industry with which his job is based is not affected by bankruptcy – he is free to continue working.
  • His home is rented, and there is no pragmatic alternative to reduce the rental cost.

Conclusion

The core reason for bankruptcy in this case really comes down to the fact that there is no income available to repay the creditors.

Luckily, there was no real arrears that would affect Mr S’s lifestyle greatly. For instance, rent was always paid, so he would not need to look for alternative accommodation. Unfortunately for the creditors, there are also no assets available to be sold, in order to pay some of the debt off up front. Therefore in this case, all creditors would have to forego all of the monies owing to them.

Case Study #2

Mrs T is a teacher who is 42, and has a monthly salary of £1,100. She has a joint mortgage with her husband for her home, which has no equity in it.

Due to a lengthy period off sick, on statutory sick pay, Mrs T has £26,000 of unsecured debt, totalling 8 different creditors, and amounting to £525 in payments per month. One of her debts is joint with her husband, and she has a car, owned outright, which has a current market value of £6,000. Once her essential bills and living costs have been taken in to account, Mrs T only has £50 left over.

The Solution

Whilst there is the right amount left over each month to consider a DRO, the overall level of debt was too high to consider this. Conversely, there is not enough left over each month to consider a DMP or IVA. Therefore, bankruptcy was advised.

As there is no equity in the house, a sale was not considered, as it would not release any funds for the creditors.

The joint debt did not qualify to be added to the bankruptcy petition, because it was in joint names with her husband. Therefore, he became solely responsible for repaying this debt. As his income was sufficient to cover this, it did not pose a problem for the couple.

Conclusion

Had there have been significant equity in the house, and the husband had insufficient income to repay the mortgage himself, then it would have been likely that the Insolvency Practitioner would have requested the sale of the property.

In the case of joint debt, it is essential that both parties communicate as to what they can and can’t afford, as this information is vital in making a case to the Insolvency Practitioner.

Free debt counselling and advice is also available from the Money Advice Service available at: www.moneyadviceservice.org.uk

TheBankruptcyService.co.uk doesn't charge a fee for its bankruptcy service, but receives remuneration from the partners that we work with in order to keep TheBankruptcyService.co.uk operating. Those partners must charge a fee to the customer to likewise cover operational costs, and this amount will vary depending on the solution offered, and the terms of the parner. For details of these terms, please refer to the website of the organisation dealing with your bankruptcy. Upon application with TheBankruptcyService.co.uk, we will forward your information on to one of our specialist debt partners. You will then be contacted, and you will be able to explain your case, and expert advice will be offered in order to ascertain the most appropriate debt solution.