In accordance with the Bankruptcy Act 1989 and the Bankruptcy Rules 1990 you may be able to declare yourself bankrupt if you are unable to pay your debts as the amount you owe is more than the value of the things you own. Going Bankrupt means you are temporarilyno longer liable for most of your debts and you do not have to pay them until you are no longer considered bankrupt.
Bankruptcy does not cover all debts so it is important to make sure you know which of your debts won't be covered (i.e. you will remain liable to repay these debts following bankruptcy) and put plans in place to deal with them.
If you are declared bankrupt you might need to:
If you are considering declaring yourself bankrupt, it is with noting that you cannot usually include a debt in your bankruptcy if you incurred the debt after you went bankrupt. If you forget a debt you incurred before you declared bankruptcy, you can usually include it in your bankruptcy application after ithas been filed with the courts.
If you are declared bankrupt you will likely still have to pay:
The bankruptcy period usually lasts 12 months. If you are declared bankrupt, most of your creditors won’t be able to contact you about your debts or take you to court.
To decide if bankruptcy is right for you, Consumer Affairs advises that, with the assistance of a lawyer and/or financial adviser, you consider:
If you are declared bankrupt, and have a mortgage or personal loan secured through your home, you will need keep up with the mortgage repayment schedule outlined in your mortgage agreement. If you fall behind on your mortgage repayment schedule, being declared bankrupt does not stop your lenderfrom seeking possession of your home.
If you have an income payment agreement (“IPA”) or income payment order (“IPO”),Consumer Affairs advises that you tell the official receiver that you need to keep paying a secured debt. The person who deals with your debts after you go bankrupt is called the ‘official receiver’. Consumer Affairs recommends that you ask the official receiver if you can pay less under the IPA or IPO so you can keep paying the secured debt as well.
If you have rent arrears for your home (i.e. you have fallen behind on your monthly rent payments to your landlord), your rental arrears will likely be included in a bankruptcy order. However, although you may not be obligated to pay your rental arrears while being declared bankrupt, your landlord could still take action to evict you. It is important that you make a plan to pay your rent arrears during or after bankruptcy if you want to keep your tenancy.
If you have an income payment agreement (“IPA”) or income payment order (“IPO”),Consumer Affairs advises that you tell the official receiver that you need to keep paying rent arrears. The person who deals with your debts after you go bankrupt is called the ‘official receiver’. Consumer Affairs recommends that you ask the official receiver if you can pay less under the IPA or IPO so you can keep paying the secured debt as well.
If you are declared bankrupt,depending on your personal residential living arrangements, you might not have to move from your current home. As part of your bankruptcy proceedings, the courts will consider whether you rent or own your home and who you live with.
If you want to move after declaring yourself bankrupt, Consumer Affairs warns that it might be harder to get a mortgage or a new tenancy for several years as your bankruptcy status can stay on your credit report for 6 years as will likely be considered by future lenders or landlords.
If you rent your home, it is unlikely you will lose your home after being declared bankrupt. Following being declared bankrupt, the court appointed official receiver cannot force you out of your rented home and has to let you keep enough of your monthly income which will allow you to pay your rent.
When you are declared bankrupt it is unlikely that your landlord will be told about your bankruptcy status unless you are behind on your rent (i.e. you are in “rental arrears”). However, if you are in rental arrears at the time in which you are declared bankrupt, it is likely that your landlord will evict you if you do not repay what is owed and are consistent in paying your rent going forward.
If you have paid all your rentand the official receiver still wants to contact your landlord, ConsumerAffairs advises that you check the terms and conditions in your tenancy agreement. If your tenancy agreement says it is an “assured”, “protected” or “secured” tenancy, the official receiver should not tell your landlord that you have been declared bankrupt.
If your tenancy agreement says a bankrupt person cannot be a tenant in your home,your landlord might let you stay if you keep paying the rent. Otherwise, if such a provision is outlined in your tenancy agreement, your landlord will have the right to evict.
If you own the home you live in,the official receiver might want to force the sale of your home to help pay your bankruptcy debts. Consumer Affairs advises that you do not give away your home or sell it for less than fair market value in order try to avoid having the official receiver selling it.
If the official receiver finds out you have gifted your home to someone you know, or sold your property for less than market value to someone you know, in an attempt to prevent the official receiver from controlling the sale of your home, this may result in the official receiver in considering imposing the following restrictions and/or penalties on you:
If you own your home, and the official receiver is looking to force the sale of your home to pay your bankruptcy debts, you might be able to stop or delay the official receiver selling it.
To work out what will happen to your home after you have been declared bankrupt, Consumer Affairs advises that you consider the following steps:
Someone might have a legal right to your home if they either:
If someone lives with you and they’re your wife, husband, civil partner or child, they have a legal right to stay in the home.
If you and someone have entered into a mortgage to purchase a home, and are both liable for repayment of the mortgage loan (i.e. joint and several liability), the other person named on the mortgage agreement will have a “beneficial interest”in your home.
If someone does not have their name on your mortgage agreement, yet has helped pay for your home, or have paid towards works that have increased the value of your home, they might have a right to some of the money if your home is sold. Their share is called their “beneficial interest” and their share may be quantified based on the amount of investment they have put into the home and/or how much their investments have increased the value of the home.
Each person’s beneficial interest is the amount of money they would get after anything secured on your home (e.g. home mortgages or loans) have been paid back. If you own the property jointly with someone else (e.g. your partner/spouse or investor), the beneficial interest is normally shared equally between you and the other owners.
You might be able to stop or delay the sale of your home if:
The official receiver has to take all your personal circumstances into account when they decide what to do about your home.
When you declare bankruptcy, you can usually keep the things you need to live (e.g. your clothes and furniture).
The rest of the belongings you own become the property of the official receiver (i.e. the person who deals with your bankruptcy). When ownership of the rest of your belongings passes to the official receiver, this is called being “vested”.
The official receiver can also claim belongings that come into your possession during your bankruptcy and before your bankruptcy ends. The official receiver will look at selling these items in order to make payments towards your creditors.
If the official receiver is allowed to sell some of your possessions in order to repay some of your bankruptcy debts, Consumer Affairs advises that you do not sell the possession at less than market value or gift the possession away; even if you haven’t been declared bankrupt yet. This could be a criminal offence and could lead to you having to follow extra restrictions and/or being prosecuted. The restrictions are called a ‘bankruptcy restrictions order’ (BRO).
There are some belongings the official receiver can’t sell (i.e. “exempt” belongings.) You can usually keep the following items:
The official receiver might sell an exempt belonging if it is considered valuable and its sale will get enough money to replace it with something cheaper and have money left over to pay your creditors(e.g. sell an expensive car for $15,000 to buy a replacement car for $5,000 and use the rest of the money to pay your creditors).
The official receiver can sell items which aren't needed for your job or your basic home needs. This includes:
If someone will buy your belongings from you, Consumer Affairs advises that you tell the official receiver before you complete the sale. The official receiver will usually agree to such a sale if the person pays what the belongings are worthand is provided with the proceeds of sale after the sale is complete.
Your passport can be taken away by the court. This would normally only happen if the court thinks you might try to leave the country to get rid of your belongings of value or are making attempts to avoid repaying your debts.
If you own property and/or assets outside of Bermuda, the official receiver might seek court permission to force the sale of your property. The official receiver will have to apply to the court in the country where your property is and request possession of the property in order to pursue the sale. If the official receiver is awarded possession of your overseas property and/or assets, the sale proceeds will be applied to your debts.
If you own goods jointly with someone else (e.g. your home or car is shared with your wife or husband), these may be sold. In this circumstance, in order to force the sale of your home to repay your bankruptcy debts, the official receiver will take the following steps:
If the other owner does not agree to the official receiver’s offers, the official receiver might apply for a court order to force the sale. If the jointly owned belongings are sold, the money from the sale will be split between the official receiver and the other owner.
If you disagree with the official receivers decision to sell your possessions or home, and are of the view that the official receiver is acting unreasonably, you may apply to the court to challenge their decision to sell.
If you disagree with the valuation of a possession that is to be sold (i.e. your possession is being sold below fair market value), Consumer Affairs advises that you talk with the official receiver and obtain an independent valuation. After you receive the independent valuation it is advised that you provide the official receiver with the valuation and ask them to change their mind
After you are declared bankrupt,the official review will allow you to keep enough of your monthly income to cover your day-to-day living costs. You can usually keep your pension as well.
If you earn more than you need for day-to-day living costs, you will be obligated to pay the rest towards your debts. This means going bankrupt can affect:
After you are declared bankrupt,any bank accounts you have are usually frozen immediately. This means your bank might stop payments going into or out of your account and will likely be restricted from using your debit cards, credit cards and cheque book.
The official receiver will likely find out from your bank how much money is currently in your account(s). If the official receiver decides that you need the money in your bank account to facilitate the payment of necessary living expenses they will tell the bank to release the funds to you.
Following communication with your official review, your bank will then decide if you can keep using the account.The official receiver is not involved in this decision. If your bank decides that you can’t use your bank account any more, you can find out how to open a basic bank account.If you have a joint bank account,your joint bank account will be frozen and the official receiver will usually give half of the money in the joint account to the other account holder.
If the other account holder has paid more into the account than you, they might be able to keep more than half the money.
If you owe your bank money (e.g.a credit card balance or debt on a loan) your bank is entitled take any money in your account to pay off this debt. This is known as ‘setting off’. If you have any savings left after repaying your bank debts, the remaining savings will be used to repay your remaining bankruptcy debts.
After you are declared bankrupt,the official receiver will likely review how you have used your savings prior to declaring bankruptcy. If the official receiver decides you have not paid all your creditors fairly, they might impose on you additional restrictions during your bankruptcy.
ConsumerAffairs advises that you get financial advice if you are thinking of using your savings before declaring bankruptcy (e.g. if you’re thinking of paying some of your debts or your pension scheme).
When you are declared bankrupt,the official receiver will likely inform your utility service providers (e.g.energy, electronic communications and gas suppliers). Your utility service providers might ask you to supply some kind of financial security (e.g. such as a guarantor on your account or provide a security deposit).
If you want to avoid to avoid having to provide your utility service provider a form of financial security,you could transfer your accounts into the name of another adult who lives in your home before you apply for bankruptcy.
However, if you transfer your account into the name of another adult, the person who is named on your account will become liable for future debts if you fail to pay your monthly bills. This could negatively impact the person who is named on your bill as they may incur a personal debt due to yournon-payment.
Under most circumstances you will be able to keep your private pension after you have been declared bankrupt. If you are not going to cash in a lump sum of your private pension, or you get regular income from your pension, within 4 years of becoming bankrupt, the official receiver will not likely be able to have access to any of yourpension.
However, if you are actively receiving income from your pension these payments will likely be considered income. This means you could be asked to pay some or all of the money received from your pension towards your debts if you have more than enough income to cover your day-to-day living costs.
If your only income is from yourpension it is not likely you will be obliged pay any of your pension payments towards your debts.
If you get compensation for something like an injury claim, you might be able to keep some of the money.Consumer Affairs advises that you ask the official receiver if you can keep the compensation.
However, it is unlikely that you will be able to keep any inheritance or insurance payouts received during your bankruptcy. This is because inheritance or insurance payouts received are considered an asset which may be sold to repay your bankruptcy debts.
If you have already made an insurance claim for damages suffered against you (i.e. personal injury claim),Consumer Affairs advises that you tell the official receiver, and the person or company you're claiming from, about your bankruptcy. It is highly likely that any insurance payout will be made directly to the official receiver and not to you. If an insurance payout is made directly to you, Consumer Affairs advises that you tell the official receiver immediately.
If you are contacted about compensation by a claims management company, Consumer Affairs advises that you do not accept their offer straight away. It is recommended that you contact the official receiver immediately to confirm whether or not you are allowed to accept the claim.
While you are declared bankrupt you will likely face restrictions when seeking to obtain credit and/or borrow money from a financial service provider as your bankruptcy status will show on your personal credit report and influence your personal credit risk assessment conducted by your lender.
If you are able to borrow money while you are declared bankrupt, you might have to pay more fees or interest than if you were not declared bankrupt to account for the increased in lending to a bankrupt person.
Your bankruptcy status will likely stay on your personal file held with your lender for up to 6 years from the date on which you were declared bankrupt. If you are still bankrupt after 6 years, it will stay on your file until your bankruptcy ends.
After declaring bankruptcy your means of generating monthly income will likely be affected if:
If you are employed and/or do not work in the financial sector, you might still experience issues as a result of declaring bankruptcy. Your employer might place restrictions on the kind of work you can do in order to minimize their exposure to any operational risk that may be associated with your bankruptcy.
After declaring bankruptcy you might find it more difficult to get a job in certain industries in the future,such as:
Generally you do not have to tell your employer if you go bankrupt. However, Consumer Affairs advises that you should carefully review the terms and conditions of your contract of employment to confirm whether it says anything about you having to make such a declaration to your employer.
If you own a business (i.e. sole proprietor/sole trader, partnership, limited liability company) at time in which you are declared bankrupt, the official receiver takes over the rights to your business. This normally means:
If you have provided your company with your own personal tools and/or equipment, Consumer Affairs advises that you try to obtain evidence proving that the tools provided are personally yours. You might be able to keep them with adequate evidence being provided to the official receiver.
While you are bankrupt, there maybe some restrictions imposed you regarding the degree of involvement you can have in managing your business. If you break any of these restrictions you will likely be considered to have committed a criminal offence. Such operational restrictions will include, but are not limited to:
If you are self-employed as a sole proprietor, or a part of a partnership, you can continue managing the operations of your business. However, it is worth noting that you will find it very difficult to get credit secured for your business as your bankruptcy will stay on your personal credit report for 6 years from the date on which you are declared bankrupt.
The people you do business with can check if you have gone bankrupt by conducting a search of a public list called the “insolvency register” which may be found through the Government of Bermuda.
If you personally declare bankruptcy and are a solicitor, accountant or work in some capacity in the financial sector you might have to leave your job if one of the following applies to you:
If you are in a regulated profession, you or your employer might have to tell the regulator of your industry that you are bankrupt (e.g. if you are a lawyer you will have to inform the Bermuda Bar Association).
If you are not a member of a regulated industry or association, Consumer Affairs advises that after you declare bankruptcy you speak with your employer’s Human Resources department and/or trade union. The official receiver might also tell the regulator or professional body of your bankruptcy status if such status is relevant to maintaining your membership.
After you have declared bankruptcy you will likely be asked to make monthly payments towards your debts considered in your bankruptcy if you have money left over after having paid your monthly essential expenses (i.e. rent, utilities and groceries). The expenses you need are called ‘essentials’ and ‘reasonable living costs’.
You will not likely have to pay any money towards your bankruptcy debts during the bankruptcy period if either:
However, it is worth noting at this stage that you will likely need to make payments for debts that aren’t part of your bankruptcy (e.g. child maintenance or student loans). If you are not sure what you need to keep paying,see above to confirm which debts are covered by declaring personal bankruptcy.
If you have declared bankruptcy, you will only have to make payments towards your debts forming part of your bankruptcy if you have money left over each month after you have paid for “essentials” and “reasonable living costs”.
Essentials Are things like:
Reasonable living costs are things like:
The person who decides your payments is called the “official receiver”. The official receiver will have to consider your views about what is a “reasonable living cost” or necessary spending for your circumstances.
After discussing with the official receiver your personal and financial circumstances(i.e. your monthly income, essential expenses and reasonable living costs,employment status, personal health), the official receiver will have you enter into an income payments agreement (“IPA”).
The IPA informs a bankrupt person how much they will need to pay towards their debts while they are declared bankrupt. An IPA will usually last for up to 3 years. Although an IPA usually means you have to make regular monthly payments towards your debts, you could also be asked to make a one-off lump sum payment.
ConsumerAffairs advises that you remain mindful of the fact that the official receiver has the authority to change your IPA if your income or expenses change (e.g. if you start earning more, inherit some money, become unemployed, fall ill).
In response to a change in your personal circumstances, the official receiver might:
If you can afford what the official receiver suggests, it is usually best to agree to the IPA. However, if the official receiver has established an IPA that is unrealistic, given your personal and financial circumstances, Consumer Affairs advises that you request the official receiver to amend the IPA if:
To ensure that you consistently make payments towards your income payments agreement, the official receiver may apply to the court for an income payment order(“IPO”). Under an IPO a portion of your wages will be automatically withdrawn and will be applied to your bankruptcy debts. If the official receiver applies for an IPO you will get a letter from the court about a court hearing.
If you receive a letter from the official receiver regarding you having to attend court in order to have you enter into an IPO, you will be afforded approximately one month or 28 days’ notice of the court hearing. Upon receipt of the IPO court hearing letter,you can either:
If you agree to the IPO, Consumer Affairs advises that you write to the official receiver and the court and inform them of your willingness to agree to the IPO within at least 5 working days before the court hearing.
If after entering an income payment agreement (“IPA”) you are of the view that the IPA is overly aggressive and that you will be unlikely to consistently comply with the IPA, Consumer Affairs advises that you contact the official receiver as soon as possible.
You will usually have to contact the official receiver within 2 weeks after receiving the IPA. Consumer Affairs advises that you check the letter attached to the IPAto confirm the period within which you may request the official receiver amend the IPA. When you contact the official receiver to request an amendment to your IPA, Consumer Affairs advises that you:
If you andthe official receiver are unable to agree to an amended IPA, you may submit a request to the courts to change your payments. The court might decide you should pay more or less than the official receiver decided. Consumer Affairs advises that you obtain a lawyer to assist in filing such a request.
Upon review of your request to amend your IPA, the court will likely make an income payments order (“IPO”). If you have a salary, the IPO will take payments straight from your salary. The court might also require you to pay the legal costs if they agree with the official receiver’s decision not to amend your IPA.
Under an IPO a portion of your wages will be automatically withdrawn and be applied to your bankruptcy debts. If the official receiver applies for an IPO you will get a letter from the court about a court hearing.
If your partner is declared bankrupt, you will need to know what will happen to any joint debts you have with them. You may also find that your home and belongings of value are affected by your partner being declared bankrupt.
This section provides information on your right sand options if your partner is considering, or has been declared bankrupt and discusses what might happen to your home and assets and whether you will be held responsible for any joint debts that you may have with your partner.
If your partner is declared bankrupt, this means that they will no longer be liable for any debt(s) that you have jointly with them that are considered as part of their bankruptcy. However, as this joint debt is shared between you and your partner, you will still be liable for the full amount of the joint debt(s) at the time your partner’s bankruptcy is declared.
Being a party to a joint debt, your partner’s creditors could pursue you for payment of the full amount of any joint debts you have with your bankrupt partner that are not covered by your partner’s bankruptcy. This is because when you take out a joint credit agreement, you both agree to be responsible for the full amount of the debt. This is called “joint and several liability”.
If your partner borrowed money on your behalf and incurred a joint debt(s) without your knowledge, you may be able to dispute your liability. However, in order to effectively dispute your liability, you will need to be able to show that you did not sign the credit agreement with your partner’s creditor.
If your partner is declared bankrupt, you will generally be able to keep your own belongings (i.e. assets). Such assets may include:
However, Consumer Affairs advises that you remain mindful that some restrictions may apply.
Even if you own your home, and your partner’s name is not on the mortgage (i.e. does not have “legal title”) you might not lose your home if your partner has a “beneficial interest” in the property. Your partner may have a beneficial interest in your home if they have helped make payments towards your mortgage or have personally invested into renovating your home and increased the value of your property(i.e. installed a pool or apartment).
If you own goods jointly with your bankrupt partner, the official receiver or bankruptcy trustee can ask you to buy your partner's share at fair market value. If you are unable to purchase your share of the jointly owned goods, the official receiver may get a court order to sell the property.
If your partner is seeking to become declared bankrupt, you must remain mindful of the impact of your partner gifting you possessions or selling you their possessions at below market value.
After your partner has been declared bankrupt, your partner is not allowed to gift you items of value at no cost, or sell them to you at less than their fair market value, in order to avoid them being taken away as part of the bankruptcy.
The official receiver or bankruptcy trustee usually checks what your partner has gifted or sold to you over the last 5 years. If it is discovered that you received gifts or bought possessions from your partner below fair market value you might have to give the possessions back to your partner or pay the trustee for them.
In response to providing gifts or selling possessions at below market value, the official receiver could impose bankruptcy restrictions on your partner. Such activity could also lead to your bankrupt partner being subject to monetary fines and/or sent to prison.
The official receiver or bankruptcy trustee canalso review the activity of your bankrupt partner for the 5 years if they suspect that your partner has defrauded their creditors. If the official receiver is of the view that your partner has deliberately sold things or given them away so they could not be used to pay their debts, your partner may be subjected to further court imposed penalties.
If you are the sole owner of a home, the official receiver will not usually have a claim on your home if your live-in partner is declared bankrupt and does not have a beneficial interest (see above). In most circumstances you will normally be considered the sole owner if you hold sole legal title to the property (i.e. only your name ison the mortgage and property deeds).
You will need to prove to the official receiver that your bankrupt partner is not entitled to any of the proceeds if the house was sold (i.e. does not have a“beneficial interest” due to making mortgage payments or investing into renovations).
If your partner owns the home, or if you jointly own the home with your partner (i.e. both of your names are on the mortgage and property deeds, or your partner has a beneficial interest due to investments or mortgage payments) you may face losing the home if your partner is declared bankrupt. Whether you will be forced to sell your home will depend on how much interest/ownership your partner has in your home. In some instances you may be afforded the opportunity to buy your partner’s share in your home.
There may be things you can do to delay or stop the sale of your home from happening. The official receiver has to apply to court for permission if they wish to sell your home. If the court grants this delay you will be given time to find suitable alternative living. If you are unable to find reasonable alternative living arrangements within the time period granted by the court, the court will not count this as a reason to not sell the home and may end up homeless.
You can stop your home from being sold if you buy your bankrupt partner's share in the home (i.e.their “beneficial interest”). If you buy your partner's share this must beat fair market value.
It is important to remember that your partner cannot sign their share of your home over to you to avoid it being sold (i.e. a gift). If the official receiver discovers that your bankrupt partner has gifted you their share of your home,your partner could have a bankruptcy restrictions order made against them, be fined or even sent to prison.
If you can't afford to buy your partner's share of the home, you might be able to find someone else who is willing and financially capable of purchasing your home (i.e. a family member)who would then let you carry on living there. Consumer Affairs advises that you and your partner get legal advice about the implications before doing this asit may be very difficult to buy-back your home in the future.
There may also be exceptional circumstances that may allow you to stop the sale of your home. Such exceptional circumstances may include:
If you and your bankrupt partner rent your home, it is unlikely you will lose your home as a result of your partner being declared bankrupt. However, there are certain situations where your rented home may be at risk if your tenancy agreement says a bankrupt person can't be a tenant in your home or if you and your partner are facing rent arrears.