We are experienced in relation to making annulment applications and usually have a number of these running at any one time.
Bankruptcy annulment is the cancelling of a bankruptcy order made against an individual.
The legal effect of an annulment is that the person concerned is deemed never to have been bankrupted, so it is as though it had never happened. This will restore their credit and reputation and will result in any of the individual’s property which is vested in the Official Receiver/Trustee in Bankruptcy to be returned.
It will also result in relevant bankruptcy entries in public registers or the Land Registry being removed.
There are three grounds upon which a Bankruptcy can be annulled;
- That the bankruptcy order should never have been made. This is fairly difficult and in practice is a very rare basis for an application. This applies to a situation where for instance there was no debt outstanding or whether the debt has already been paid, and the Bankruptcy Order was therefore wrongly made.
- The debts and expenses of the bankruptcy have been paid or secured in full to the satisfaction of the court.
- If an undischarged bankruptcy makes an agreement with its creditors to enter into an Individual Voluntary Arrangement (IVA).
The information on this page will concentrate upon the second ground which is much more commonly used.
However, in the event of making an application to annul on the first ground, it is always necessary to obtain the opinion of Insolvency Counsel as to whether there are realistic prospects of success.
In relation to making an application to annul the bankruptcy on the second ground, this will require all the debts and expenses of the bankruptcy to be paid off in full. This will include the Official Receiver’s or Trustee in Bankruptcy’s costs including their legal fees and other expenses for administering the bankruptcy up until the date of annulment.
Raising money to annul bankruptcy on grounds of payment of the debts and expenses of the bankruptcy in full.
There are several methods of raising the money. This may be from family and friends.
However, commonly this is by way of specialist finance known as annulment finance. Only a number of specialist lenders provide this sort of facility.
The raising of the monies is normally based upon a property which has substantial equity in it. Normally the loan can be raised at 65% loan to value, e.g., if your property has a value of £500,000, a loan of up to £325,000 may be raised.
Annulment finance is typically bridging finance and relatively expensive. There would be an arrangement fee of around £5,000.
There will also typically be monthly interest which is rolled up until the loan is paid off. The rolled-up interest is typically over a 6 – 12-month period. Interest can be quite high and sometimes over 20% per annum. The benefit of annulling a bankruptcy in this way is to allow the bankrupt to retain control of the sale of the property rather than allow the Trustee in Bankruptcy to carry out a forced sale at a lower value.
There are a number of specialist brokers who can assist with the raising of this type of finance who we can recommend. They are not connected to this firm and we do not have any financial arrangements with them.
Annulment finance is typically bridging finance and the commercial expediency is to pay off the bridging loan as soon as reasonably possible. This can be by way of remortgaging the property at normal commercial rates – following the ending of the bankruptcy order, or alternatively by selling the property.
A sale of the property by the bankrupt and/or his partner will usually result in a much better realisation than a sale by a Trustee. If a Trustee sells a property then all the net proceeds will need to be paid by the Trustee in Bankruptcy into the Bank of England Insolvency Services account which is subject to a negative tax, typically at 15%.
Additionally, when a Trustee sells a property this would be normally based upon a 90-day sale with a forced sale value being obtained – typically the same as if a mortgagee in possession were to sell. In my experience a forced sale price is normally about 70% of the full market value which can be achieved by an owner occupier selling the property.
An owner occupier sale of the property will not be limited to 90-day period and is able to continue to market the property for offers unless and until a proper offer is received.
The bridging finance as stated is typically between 6 to 12 months with rolled up interest payments and so accordingly an owner occupier would have the extra time period to properly expose the property for sale upon the market.
An application for bankruptcy annulment is a fairly involved process. This would normally involve writing to all creditors and obtaining statements of account from them.
Statutory interest will also have to be calculated which runs at 8% per annum from the date of the relevant bankruptcy order.
Sometimes it is possible to negotiate with the creditors to attempt to agree for them to accept reduced amounts, upon the basis that the reduced amounts will be paid off quite quickly if the bankruptcy is annulled.
A number of creditors may not be co-operative and will ignore correspondence and it will be necessary to chase them up etc.
It is also not unusual for new creditors to appear out of the woodwork and submit a proof of debt in the bankruptcy. The requirement for annulment is that all debts must be paid or secured to the satisfaction of the Court. If there was a dispute as to debt the monies could be paid into Court so that the annulment may proceed with the dispute remaining to be resolved or determined by the Court.