Unaccustomed as I am to gossip, I find myself sharing a story about a friend and his turbulent life. Similar to myself, he entered bankruptcy to deal with his debt problems. Don’t worry as he’s signed a disclaimer giving me permission to share his story.
The purpose of sharing my friend’s story isn’t to mock him and his difficult financial position, but to highlight what can happen when things go wrong. It’s also a lesson in picking the right debt solution.
We’ve all heard of bankruptcy – it’s internationally known from Monopoly through to the banking industry. It’s also typically thought to be the “worst” debt situation. It’s for this reason people often enter bankruptcy when their situation is dire.
Bankruptcy & My Friend
I started this story by telling you my friend entered bankruptcy, which he did. But, despite him knowing I entered the same solution a number of years ago, he didn’t want to tell me about his financial problems. The first I knew of his bankruptcy was when he said “the bankruptcy Trustee wants my ex-wife’s house!”.
“What?”, I said.
“Well, I entered bankruptcy last month because I had £40,000 debt” was the reply.
“Why didn’t you tell me?” was what I thought. But instead I said, “OK, did you not want my help?”
He said, “No, I didn’t think I needed help, but it turns out I do”.
It transpires that my friend thought bankruptcy was the only option for him. As a result he made himself bankrupt and was appointed a Trustee to manage his case. He even paid to make himself bankrupt.
His ex-wife didn’t know he was going bankrupt because, again, he didn’t think it would matter.
It’s All About the Money, Money, Money
Bankruptcy for one person is not the same solution for another person. It’s down to your personal and financial situation. When I entered bankruptcy I was unemployed, had no asset worth any money and genuinely couldn’t repay anything to my debts. So, my solution lasted for 1 year and at the end of the solution my credit file was impaired for another 5 years.
The difference for my friend is that he’s in a different boat, which is sinking fast!
He’s in employment and despite the fact he lives in rented accommodation, he owns a house (which the ex-wife and children still live in). The bankruptcy Trustee investigated and realised he could afford £300 per month towards his debt. This meant something called an Income Payment Order was established for 3 years. Ok, so there’s £10,800.
Furthermore, he has a 50% share in the house he owned with his wife. The property is:
Valued at: £250,000
Mortgage to: £190,000
50% of equity: £30,000
The Trustee in bankruptcy has the right to ask for his share of the equity, even though he doesn’t live in the property. This came as a huge shock to my friend who assumed he just wrote off the debt and didn’t have to pay anything back.
He’s now going to pay for his mistake, both personally and on a financial level.
The next plane to Cuba leaves in 3 hours and I wouldn’t bet against my friend having purchased a one-way ticket. The ex-wife is on the ‘war path’ as she – rightly I may add – wants answers.
The Trustee wants her to raise around £25,000 (his share of the equity minus fees and charges) otherwise he’ll be proceeding to sell the property.
£25,000 plus the 3 years payments means my friend will repay £35,800 for a £30,000 debt. Technically, he’s not insolvent and should never have entered bankruptcy. The shock for his ex-wife must have been horrific.
The Importance of Debt Advice
If you don’t know what the best debt advice is then don’t just guess, that makes you a fool. Find somebody or an organisation that knows the right answers. There are plenty of face to face and telephone debt charities! A conversation could have helped my friend avoid the drama he’s currently wading his way through.
At this stage, I’m not knowledgeable enough to help advise my friend out his debt problem so I’ve put him in touch with a charity, but it doesn’t look good. Thankfully I think his ex-wife may be able to “buy-out” his share of the equity in a third party buy-out situation so they can retain the house. But I don’t think he’ll be welcome to visit without armed protection for a number of months!