If you go into bankruptcy, however, you will have to give up your assets of value and your interest in your home. More than likely, declaring bankruptcy will involve the closure of any business you run and the dismissal of your employees. Bankruptcy will also impose certain restrictions on you.
What are the implications of bankruptcy?
- You lose control of your assets.
- You cannot obtain credit without permission from the lender.
- You cannot act as a company director.
- You cannot take part in the promotion, formation or management of a limited company without the permission of the court.
- You cannot trade in any business under any other name unless you inform all persons concerned about the bankruptcy.
- You cannot practice as a chartered accountant or a lawyer.
- You cannot act as a justice of the peace.
- You cannot become a member of the House of Assembly.
What can you keep if you’re bankrupt?
- You can keep any assets held in trust for any other person.
- You can keep any tools, books, vehicles and equipment necessary for your personal or professional use.
- You can keep clothing, bedding, furniture, household equipment and provisions as are necessary to satisfy you and your family’s basic domestic needs.
- You can keep any other assets excluded from the estate.
How do you declare bankruptcy?
You or your creditors can apply to the Court for a bankruptcy order which, if granted, will result in the court vesting or taking control of your assets and placing them in the care of an individual to divide among your creditors. This individual is called a bankruptcy trustee.
Who may make a bankruptcy application to the Court for you?
An application to the Court for a bankruptcy order may be made by:
- You (the debtor).
- One or more of your creditors.
When should you apply for bankruptcy?
You should apply for bankruptcy against yourself:
- if you are unable to pay your outstanding debts.
- if you owe more than $2,000 in unsecured debts.
- if the value of your assets available for distribution to your unsecured creditors is more than $2,000.
Your application must be accompanied by a verified statement of your assets and debts (liabilities).
Why might your creditors apply for bankruptcy against you?
Your creditors might apply for bankruptcy against you:
- if you owe them more than $2,000 and the amount is payable immediately.
- if you owe all of your creditors more than $2000 and the amount is payable immediately.
- if the debt is incurred in the British Virgin Islands.
What is a secured creditor?
A secured creditor is one that has a secured debt, which is debt backed or secured by collateral to reduce the risk associated with lending. For example, with a mortgage, your house is collateral towards your debt. If you default on repaying your mortgage, the bank will seize your house. The bank, because it has a secured debt, would be considered a secured creditor.
What is an unsecured creditor?
An unsecured creditor is one that has unsecured debt, which is debt that is not backed by collateral or by an asset. An unsecured creditor is the opposite of a secured creditor.
What happens if a secured creditor applies for a bankruptcy order against you?
If a secured creditor files for bankruptcy against you:
- the creditor must be willing to give up the secured interest, that is the collateral, for the benefit of your other creditors. For example, if you owe the bank for a mortgage and the bank applies for a bankruptcy order against you, the bank must state its willingness to give up its interest in your house, which is the collateral.
- give an estimate of the security interest or collateral.
- make the application for the amount they are owed minus the value of the secured interest.
When might the court make a bankruptcy order?
The Court might make a bankruptcy order on an application if it is satisfied that:
- you are unable to pay your debts as they fall due.
- your unsecured debt exceeds $2,000.
- if a bankruptcy order is made, the value of your assets available for distribution to unsecured creditors is more than $2,000.
What is a statutory demand?
A statutory demand is the first step to declaring bankruptcy against you and is prepared and served by a creditor without any Court involvement. It is a written notice to you specifying the nature of the debt you owe and the amount due. The amount that is due must be at least $2,000.
The notice will be sent to you by your creditor or someone authorized, such as a lawyer, giving you at least 21 days to pay your debts.
The statutory demand must state that if the demand is not complied with, an application may be made to the Court for appointment of a bankruptcy trustee.
A statutory demand can be served as soon as the debt is due. If you dispute the claim, you can apply for the statutory demand to be set aside. The Bankruptcy Court will halt the bankruptcy if there is a substantial dispute about the sum outstanding.
The statutory demand must include the name, address and contact details of any person with whom you may communicate about dealing with the debt to the satisfaction of your creditor.
How can you reduce the risk of bankruptcy following a statutory demand?
- To avoid bankruptcy, reduce the debt you owe to less than $2,000.
- Offer to pay the debt by installments.
- Make a reasonable offer to settle the debt.
- Apply to have the statutory demand set aside
How can you get a statutory demand set aside?
After the period of 21 days from the statutory demand being served on you, the person issuing the statutory demand may begin the process that petitions the Court for your bankruptcy.
One method of avoiding bankruptcy is to get the statutory demand set aside.
You can get a statutory demand set aside if any of the following happens:
- The amount stated on the statutory demand is substantially disputed.
- The person issuing the statutory demand also owes you money which means that you have a counterclaim.
- The person issuing the statutory demand is holding security that equals or exceeds the amount you owe.
- The demand was issued in error.
- The amount you owe is less than $2,000
- Execution has been stayed on a judgment debt.
- You are complying with an installment order. This would mean the debt is not actually owed, as it is being paid back.
- Your creditor failed to comply with the rules and prejudiced you in the process.
What are the time limits to get a statutory demand set aside?
Your application to set it aside must be made within 18 days of the statutory demand being served on you.
Why might the Court make a bankruptcy order against you?
The Court might make a bankruptcy order against you if you fail to comply with the requirements of the statutory demand and your creditor has made an application to the Court.
What happens if more than one application for a bankruptcy order is presented against you?
If two or more applications for bankruptcy orders are presented against you, the Court may consolidate the proceedings and treat them as one order.
How long will it take to determine a bankruptcy order?
A bankruptcy order will be determined within three months after it is filed. However, the Court may grant an extension of not more than three months.
What happens if the Court makes a bankruptcy order against you?
If the Court makes a bankruptcy order against you, it will appoint either the official receiver or an eligible insolvency practitioner to be your bankruptcy trustee.
The bankruptcy trustee will take control of:
- all documents which relate to your estate or affairs and which belong to you or are under your control.
- all your assets that are capable of manual delivery.
The bankruptcy trustee’s main duty is to investigate your financial affairs for the time before and during your bankruptcy. The bankruptcy trustee is then responsible for disposing of or dividing up your assets and making payments to your creditors. The bankruptcy trustee becomes responsible for uncovering as much as possible about your assets and debts (liabilities) and then maximizing returns for the creditors from the assets available, within certain guidelines. Bankruptcy trustees must be licensed by the Financial Services Commission.
Your trustee will have 60 days from the date of the bankruptcy order to prepare a preliminary report.
What is required of you as the bankrupt?
You will have 21 days to submit a verified statement of your assets and debts (liabilities) to your trustee. A trustee may release you from having to submit a statement or may extend the period of time you have to submit the statement. The trustee may also apply for a limited disclosure if the statement will prejudice the bankruptcy.
Several things will be required of you:
- You will be required to reveal to all the assets in your estate that are in your possession or control.
- You will be required to deliver to your trustee all documents in your possession or control which relate to your assets or affairs.
- You may also be required to appear before the Court to be examined concerning your affairs, dealings and assets.
Failure to comply with any of the requirements is an offence.
Will other people be involved?
Others may also be required to be involved in your bankruptcy process:
- If any person holds assets for you, they will also be required to deliver them to your bankruptcy trustee.
- Your spouse or former spouse may be required to appear before the Court to be examined concerning your affairs, dealings and assets.
- Any person known or believed to be indebted to you or to have in his/her possession any asset comprised in your estate may also have to appear before the Court to be examined.
- Other concerned persons may have to appear before the Court to be examined about your estate.
Can your creditors still pursue you after bankruptcy?
Once a bankruptcy order has been made against you, your creditors can no longer pursue you for payment. Payment becomes the responsibility of the bankruptcy trustee.
How will your assets be distributed under bankruptcy?
Your assets and estate will be distributed to those to whom you owe money in the following order:
- Costs and expenses incurred in the bankruptcy.
- Amount due to your present or past employees.
- BVI Social Security Board.
- Amount due 12 months immediately before to your employees relating to medical or pension schemes.
- Amount due to the Government of the Virgin Islands.
- Amount due to the Financial Services Commission.
- Claims from your creditors admitted by the bankruptcy trustee.
- Interest payments.
- Debts to your spouse.
When will bankruptcy end?
If you are eligible, you will be discharged from bankruptcy at the end of three years beginning on the date of the bankruptcy order. You will normally get your discharge automatically even if no payments have been made to your creditors. If you are discharged automatically, you do not have to do anything to get your discharge. However, the Court may extend the three-year period or refuse to grant your discharge if you have failed to comply with any of your obligations.
If you are not eligible for automatic discharge, you may apply to the Court for your discharge at any time after three years from the date of the bankruptcy order.
You may also apply for discharge, in any other case, at any time after six months from the date of the bankruptcy order. The Court may refuse your application, discharge you completely from bankruptcy, or discharge you subject to certain conditions.
What are the effects of being discharged from bankruptcy?
The discharge from bankruptcy releases you from all debts claimable in bankruptcy, which are those that you incurred before the bankruptcy order.
The debts you are not freed from include:
- any money owed under Court proceedings.
- maintenance agreement or maintenance order or arrears.
- damages in respect of personal injuries to any person.
- fines imposed for an offence.
- any court fines or debts arising from fraud.
- debts you incurred after the bankruptcy order.
Can a bankruptcy order be cancelled?
The Court may cancel or annul a bankruptcy order at any time if it determines the order should not have been made. The Court may also cancel or annul the bankruptcy order if the claims made in the bankruptcy and the expenses of the bankruptcy have all been paid.
What happens after bankruptcy?
Although you are discharged, you will still be required to give assistance to the bankruptcy trustee as reasonably required to distribute your assets.
After discharge, any assets that you acquire you may usually keep.
You should adhere to a carefully thought-out budget to avoid incurring debts you cannot afford. See sections on Budgeting, Spending and Managing Debt for more information.