Expenditure before Bankruptcy

[Arkwright]

I'm sure there's a simple answer to this one and I'm not as clever as I thought I was.

If I were to sell my house and use the all equity to pay for 2 years advance rent on a somewhere to live and then file for bankruptcy, what would the likely attitude of the OR be?

I know it's all hypotheticals but at the monet, hypotheticals is all I got...

[Bill-K]

Re: Expenditure before Bankruptcy

I don't know if this will help, as it's a different scenario, but similar in principle.

We moved here to Scotland 21 years ago, and rented a house here. Meanwhile, we rented out our old home down South, and therefore kept up the mortgage on it, with the rent being paid straight to the Building Society.

We were able to claim some means-tested benefits while we tried to re-establish our selves here, keeping the option open to move back down South if things didn't work out. We eventually decided that we were going to stay, and we sold our old home to the council down there - who had been acting as agents for us in obtaining tenants.

At that point, we suddenly came into possession of several grand in equity, but decided not to buy another property here, and we used the money to establish a small business, but a decent car, pay off some other loans, etc. I declared this sudden influx of cash to the benefit providers, and detailed what it had been spent on. In effect, we were materially better off in some respects, but financially in much the same position as we had previously been.

There followed a helluva lot of argument, which required me to 'wise-up' on benefit regulations in the local library. With regard to means-tested benefit award calculations, a claimant's financial capital is taken into account, and above a certain threshold, it is deemed to be generating what is termed a 'notional' income (a mathematical formula is used to calculate this). This 'notional' income is then counted as part of the claimant's income for the purposes of calculating their benefit award.

So, if we had just put the cash into a savings account, then we would have had our benefits reduced, or stopped altogether. But we didn't do that - we spent it !!!

The ensuing discussions then relied on another benefit regulation, which decreed that if a claimant disposed of capital purely in order to obtain benefits, then they would still be treated as if they had that capital. A 'Catch 22,' I guess - but all perfectly reasonable. However, IF the claimant can show that the money was spent on necessities, or in an otherwise reasonable manner, then the claimant will be deemed to have disposed of such moneys reasonably, and such sums will not be counted as capital. It took a lot of to-ing and fro-ing, but in the end I managed to convince them that just about all of it had been spent on 'allowable' items.

Basically, if you blow it all on a holiday in Vegas, then you frittered it away. If you bought a new car and some furniture - because your old banger was on its last legs/wheels, and the furniture was threadbare - then that is reasonable. Again, though, a top of the range Merc might not quite be seen as 'reasonable,' whereas a mid-range family saloon might. So there are extremes, where it's pretty obvious what is what - but there is a big grey area in between.

If you have been used to the relative security of 'owning' your home (and, yes, I took your blog point - that the bank probably owns most of it, in reality), and suddenly find yourself in what is a pretty desperate position, where you have lost both your livelihood and your home, then it would appear reasonable to me, to feel a need to regain some security. Paying 2 years rent in advance would seem very sensible and very reasonable to me - given your awful circumstances.

OK., this was about benefits - but I suspect the principles are the same, or similar, to bankruptcy and IVA's.

Dunno if I've helped - but you got the stuff anyway !!!

[Arkwright]

Re: Expenditure before Bankruptcy

Hi Bill

Thanks for sharing your experience. It would be interesting to know if an OR would take a similar view.

Clearly taking this route would in effect leave me some disposable income at the end of the month as I wouldn't have rent to pay, so I guess the OR would certainly be interested in getting his/her hands on it.

that being said, I would still probably benefit financially in the long term. I would have to work out some more precise figures.

Any other thoughts would be most welcome.

[labman]

Re: Expenditure before Bankruptcy

Hi,

I know you're talking hypothetically here, but have you a place in mind and is it someone you know and trust?

The reason I ask is that 99.9% of all rentals are initially on a six month Assured Shorthold Tenancy Agreement. You pay a deposit, normally around the figure of a months rent in advance. The landlord, by law, has to put this into one of three bonds to ensure its security. After six months s/he can ask you to leave. Paying two years would thus not be an immediate option.

Have you asked the Bankruptcy Association or National Debtline who could probably best advise?

The other thing that occurs to me is whether this might count as a gift. Under Section 357 of the Insolvency Act 1986 you would be committing an offence, risking up to two years imprisonment if you did this.

Have a read of sections 353 - 361 of this act, they're very reader friendly and may help you understand a little more what constitutes an offence under insolvency regulations.

[labman]

Re: Expenditure before Bankruptcy

Me again, sorry. If you text me, I can put you in touch with several people who have gone through bankruptcy, and would almost certainly be able to answer any hypothetical questions you may have, if people on here cannot answer them. If you think you would find this useful, you know where I am.

[Arkwright]

Re: Expenditure before Bankruptcy

Thanks for your replies Labman...

E mail on its way to you.

[New_Age_Biker]

Re: Expenditure before Bankruptcy

Another thought
If you paid a larger than normal depsoit - the landlord may require it as you are just about to become bankrupt - it would have to be placed in a deposit protection scheme.
In such a scheme you would not have the money nor the use of the money but upon the tenancy ending it would be returned to you
Then your residual income would not be so high to pay back to creditors
Not sure of the legality but it's an idea......

[labman]

Re: Expenditure before Bankruptcy

One thing I've gleaned about BK is it is unwise to try to outmanouvre the OR. They have seen it all before!

The only trick I know does work is to open a basic account and never use it before BK, forget to mention it as it's never used, then at least you have an immeidate bank account after discharge.

[Bill-K]

Re: Expenditure before Bankruptcy

Good one, Labman - I recall in the old penalty charge reclaim days that the banks would close the accounts of claimants, and we always advocated the prior opening of what we termed a 'parachute' account - ready for just that. Eventually, the FOS 'outlawed' that particular 'toys outta the pram' tantrum - but the principle still applies here, doesn't it ?

I was with A&L until our Trust Deed (IVA), and I opened a Smile account in readiness. They seem OK. LOL - I even got a £500 O/D limit from day 1 !!! - and a blankety-blank cheque book......but no pen :tinysmile_cry_t:

[Hurricane Puffrose]

Re: Expenditure before Bankruptcy

i know im gonna regret this but whats a blankety blank chequebook?

[labman]

Re: Expenditure before Bankruptcy

You're showing your youth young lady! lol

Terry Wogan and his Blankety Blank cheque book and pen, followed later I think by Les Dawson. Don't ask who Les Dawson is!:beagle:

[Hurricane Puffrose]

Re: Expenditure before Bankruptcy

I know him he had snorbitz!!

[Curlyben]

Re: Expenditure before Bankruptcy

Actually snorbitz was with Bernie Winters



This is Les Dawson



This is Blankety Blank: Blankety Blank - UKGameshows

[Hurricane Puffrose]

Re: Expenditure before Bankruptcy

OH hes the bloke in the dress!! yeh i know him!

[Bill-K]

Re: Expenditure before Bankruptcy

NO NO NO, Puff !!!

Les Dawson was a brilliant pianist, and a lover of Mothers-in-Law everywhere. He also dabbled in stand-up comedy. He duo'd with Roy Barraclough, who also did time in Corrie, I believe.

http://en.wikipedia.org/wiki/File:Cissie_and_Ada.jpg