By elmads

In the past, bankruptcies mean that debtors will be slaves of their creditors. It was during the ancient civilization like the Romans and Egyptian, where slavery was used as a debt repayment method. It was also known as debt bondage.

It was indeed an unfortunate time, because people who were not able to repay their debts during that era were forced into almost a lifetime of labour, even to the extent that their whole family and the their next generation were indebted to their creditors and their creditor’s lineage as well.

Those days of slavery where gone, a new and humanitarian way was formed for debtors to repay their creditors, thanks to the time and the advancements of the human kind. Bankruptcy has now been a way to eliminate, reduce or repay debt legally. The governments gave indebted people another chance to start life a new via the bankruptcy law.

Every country have their own bankruptcy law but the general purpose have always been the same, there are just some few differences including the names of the different types of bankruptcies. I have discussed in my previous blog regarding “Bankruptcy in the US”

In this blog I’ll be talking about the UK and the Philippines bankruptcies.

UNITED KINGDOM

Bankruptcy

If a person who lives in the UK is unable to pay for their debts, then it would be worth considering to apply for bankruptcy. It is a debt relief option that is provided by the government. It is a temporary legal status and grants you to start your financial life anew.

Take note; Bankruptcy in the UK is like Chapter 7 Bankruptcy in the US, the difference is that only individuals can apply for this. Companies have a different way of filling for it, and it is not called bankruptcy.

Eligibility

• For individuals only
• Living in the UK
• Age over 18
• Cannot pay for their debts
• Debt more than £750 and above

Steps

1. Complete an online application. This depends where you live, because Scotland, Northern Ireland, and England including Wales have their own process and webpage for it.
2. Pay for the fees – unfortunately there are still fees needed to be paid. The amount varies depending where you live in the UK.
   • England & Wales – £680
   • Scotland – £150
   • Northern Ireland – £525
3. Once your application for bankruptcy is approved by the court, you’ll now then have the legal status of bankrupt. This means that all creditors you owe money will not be able to contact you and pressure you to pay your debts while your in this status.
   • Note: These are just the initial fees for filling, some countries within UK have their own additional fees that needs to be paid like court hearing fees and also solicitor fees
4. There will be a person appointed to you who is called the Official Receiver (also known a trustee). Their role is to assess which of your assets they can sell in order to pay your creditors. Not all assets will be sold most especially the tools and equipment you’ll be needing for your activities of daily living like your household goods. Official Receivers use the things you own and your extra income to pay back as much as what you owe as possible.

Properties are not immediately sold because the Official Receiver will first review all of your financial health, income and others factors in your financial life, before deciding if your property will need to be sold.

Bankruptcy restrictions

• You’ll not get credit over £500 without telling the creditor that you’re bankrupt
• You’ll not be allowed to used credit cards
• certain types of debts will not be cleared such as, student loans, social funds, debts due to fraud, damaged owed to personal injuries to anyone

The Bankruptcy legal status lasts for 12 months/1 year. In some cases, if the person is not compliant or not well behaved then the bankruptcy status can last for more than one year.

Additional information: Some creditors can make you bankrupt by filling a creditor’s petition if you owe them an unsecured debt such as Credit card loans, Personal loans, and Medical bill loans, which is over than £5,000. You will not have any choice but to cooperate with them once the court approves their petition, or better pay of all your debts to your creditors, if not possible then try to reach a settlement with them. This settlement and arrangement can processed as an Individual Voluntary Arrangement (VIA)

Individual Voluntary Arrangement (IVA)

As per the money charity UK https://themoneycharity.org.uk/money-statistics/ , the average household debt in 2021 was £61,933 including mortgages, while the per individuals basis was worth £32,544.

This is for individuals who have the capacity to pay their debts but are struggling to pay for their common debts. This is actually the counterpart of the USA’s Chapter 13 Bankruptcy.

In IVA, you’ll have a legal agreement with your creditors on the amount, time interval and time frame of your repayment journey. It is making a debt repayment plan.

An IVA can be done with one off payment or 5-6 years time horizon repayment journey.

Steps

1. Applying for an IVA through the court
2. Making a proposal how to pay the debt
3. The court and the creditors should agree with the proposal you’ve made
4. Once your proposal is approved, an official receiver will be appointed to look after your debt repayment journey, review your financial health, and assess your assets that can be sold.

IVA restrictions

You’ll not be allowed to used credit cards

Student loans, social fund loans, and child support are not included in an IVA.

IVA is a long debt repayment journey, but is a good way to still own the assets without needing for it to be sold.

UK Company Bankruptcy and their Nearest Counterpart in the US

Administration

Administration is similar to Chapter 11 Bankruptcy of the US.

Companies are the only one allowed to file for this. It is a reorganization and repayment type of bankruptcy.

Once court approves the filled request for Administration, they’ll then appoint an administrator to oversee the debt repayment process of the company.

The goal here is for the company to still operate, while restructuring their debts through selling some of their assets and use the acquired money to repay the business’ outstanding debts.

Insolvency

Insolvency is similar to Chapter 11 Bankruptcy of the US.

Companies are the only one allowed to file for this. It is a liquidation bankruptcy.

NOTE: There is a misunderstanding with the word bankruptcy in the UK. When you say bankruptcy, it is automatically for individuals, while for companies it is called as insolvency. Both are still for liquidation purposes to repay or clear off debts to their names.

This is the end of the line for a company, because the priority in the insolvency law is to pay the company’s creditors. The operations of the business will stop and will even cease to exist.

The Philippines

In the Philippines, Reublic ACT 10142 or the Financial Rehabilitation and Insolvency Act (FRIA) is the equivalent law for bankruptcy and insolvency issues.

Under RA 10142 there are two main courses to be undertaken when a company or an individual will declare bankruptcy; it is either liquidation or rehabilitation, and personal or business. These processes are straightforward and are similar to The US and UK laws.

For more information see the main website of RA 10142 – https://lawphil.net/statutes/repacts/ra2010/ra_10142_2010.html

To sum it up

The bankruptcy laws in the US, UK and The Philippines are almost the same. Their purpose and how it is being undertaken.

Bankruptcy has always been seen as failure by the society, because gives a perception that a person who filled for it does not know how to handle their money.

There is in some extent facts in that perception, but not the entirely. Why? because each one of us have different life circumstances, learning, skills, upbringing, culture and mindset. Bankruptcy is actually a chance to rearrange what has been a messed up financial life because of debt and as a means to start start life a new.

At time to time we will stumble, fall and even hit rock bottom, but that doesn’t matter. What is important is our willingness to get up, learn, improve and be the best version of ourselves. If this is the mindset that a person builds on, despite his/her current debt problems, then bankruptcy will indeed be a blessing for him/her.

Bankruptcy is like a game console. It has a reset button to restart the money game with zero debt. That being said, if we do not learn to change our strategy, our plan, mindset and perspective, then same as any other games, we will just always end at the same level. A repetitive cycle of getting stuck, stagnant, and frustrated.

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.