In accordance with the Bankruptcy Act 1989 and the Bankruptcy Rules 1990 you may be able to declare yourself bankrupt if you find yourself unable to pay your debts. It is important to note that declaring yourself bankrupt means you are publicly stating that you are:

• Temporarily no longer liable for most of your debts; and
• Not obligated to pay the debts considered as part of your bankruptcy declaration until you are no longer considered bankrupt.

If you to: the courts are willing to consider your bankruptcy application and you are consequently declared bankrupt, it is likely that the courts will obligate

• Keep paying some debts while you are bankrupt; and
• Temporarily stop paying some debts on the condition that you will start paying them when your bankruptcy period ends.

Appreciating that declaring yourself bankrupt may serve to provide some form of temporary of financial relief, it is important to note that declaring yourself bankrupt will not cover all of your outstanding debts.  Therefore, as part of your bankruptcy application to the courts it is important to confirm which of your debts won't be covered.  

All debts not covered as part your bankruptcy declaration will result in you remaining liable to repay these debts following being declared bankrupt.  Following a declaration of bankruptcy, Consumer Affairs advises debtors to establish mutually agreed repayment plans with their creditors in order to repay debts not covered as part of the bankruptcy declaration.

If you are declared bankrupt it is likely that the following debts will not be covered, and you will likely be obligated by the courts to continue to repay the debt:

• Mortgage payments;
• Student loans;
• Maintenance payments and child support payments, including any lump sum orders and costs from family proceedings;
• Any payments a court has ordered you to make under a confiscation order (e.g. for drug trafficking); and
• Debts you owe because of any personal injury debts that you owe as a result of having caused harm to another person (i.e. multiple motor vehicle accident where you were found liable for damages incurred).

If you file for bankruptcy it is important to note that your declaration of bankruptcy will typically last for a period of 12 months; however, your bankruptcy status may be extended as necessary. If you are declared bankrupt most of your creditors (i.e. the debts covered by the bankruptcy status) won’t be able to contact you or take you to court for repayment until your bankruptcy period ends.

If you are considering declaring yourself bankrupt it is worth noting that you cannot usually include a debt in your bankruptcy if you incurred the debt after you went bankrupt. If you forget to include a debt as part of your initial bankruptcy declaration, or you incur an additional debt following your declaration of bankruptcy, at the risk of incurring legal and administrative court filing fees you can usually apply to have the courts consider the additional debt and assess whether your bankruptcy status should be amended accordingly.

To decide if bankruptcy is right for you Consumer Affairs advises consumers to consider the following criteria with the assistance of a lawyer and/or financial adviser:

• What you will have to pay to declare bankruptcy (i.e. legal fees, financial advisor fees, court filing fees);
• Which of your debts will be covered by declaring yourself bankrupt;
• How declaring yourself bankrupt might affect your assets; and
• How you dealt with your debts before going bankrupt.

Depending on your personal living arrangements, if you are declared bankrupt 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.

Appreciating the long last impacting bankruptcy may have on an individual and their credit score, it is likely that you will find it harder to get a mortgage or a new tenancy for several years as your bankruptcy status can stay on your personal credit report for up to 6 years and will likely be considered by future lenders or landlords.

If you decide to declare bankruptcy it is important to remember that you can usually keep some of the essential items you need to live (e.g. your clothes and furniture). However, personal assets considered unessential are likely to become the property of the Official Receiver and will be sold so that the proceeds may then be applied towards the repayment of your debts.  When ownership of your unessential assets passes to the Official Receiver the belongings are considered to have been “vested”.

In addition to claiming possession of unessential belongings, the Official Receiver can also claim additional belongings that come into your possession during the period of your bankruptcy and before your bankruptcy ends. Similar to unessential items vested at the start of a bankruptcy period, any additional belongings obtained during your bankrupt will likely be sold and the sale proceeds applied towards to the repayment of debts covered by the bankruptcy declaration.

If the Official Receiver elects to sell some/all of your unessential belongings, Consumer Affairs advises that you do not try to undermine the Official Receiver by selling the belongings at less than market value or gifting them to a friend or family member; even if you have applied for bankruptcy but have not yet been declared bankrupt. Such activities will likely be considered a criminal offence and could lead to you having to face:

• The imposition of additional bankruptcy performance obligations restrictions enacted through a Bankruptcy Restrictions Order (“BRO”);
• Financial penalties; and/or
• Criminal proceedings.

Following a declaration of bankruptcy the court appointed Official Receiver will likely require you to enter into an income payment agreement (“IPA”) and/or an income payment order (“IPO”). The purpose of an IPA is to ensure that you repay the debts not covered by your declaration of bankruptcy and an IPO will place a limit on the amount of personal finances you may have access to until your bankruptcy period ends.  

With the possibility of the Official Receiver imposing an IPA and/or an IPO, it is important to remain mindful of the consequences of being declared bankrupt.  By being declared bankrupt this will impact:

• Your access to your personal bank account(s) and savings;
• The monthly bills and expenses you pay and how you pay;
• Your access to your retirement pension;
• Any one-off payments you receive while being declared bankrupt (e.g. insurance claims or inheritance); and
• Your credit score and your ability to borrow money while being declared bankrupt and in the future.

When establishing an IPA and/or an IPO the Official Receiver will take into account your ongoing personal expenses and allow you to keep enough of your monthly income to cover your day-to-day living costs.  Consumer Affairs advises those individuals who are considering declaring themselves bankrupt to ensure that the disclose all of their personal expenses to the Official Receiver so that any IPA or IPO imposed is reasonable and proportionate.

After declaring bankruptcy your method of generating monthly income may be affected if:

• You own your own business;
• You are a lawyer;
• You work in the financial sector; or
• You work in a capacity where you are responsible for the handling of money.

Generally, you do not have to tell your employer if you are declared bankrupt. However, Consumer Affairs advises member of the public who are considering declaring themselves bankrupt to first carefully review the terms and conditions of their contract of employment.  Depending on your nature of employment your ongoing employment may be conditional on the fact that you act in compliance with the laws of Bermuda and remain in good financial standing.  

Typically, employers in the financial service industry will prefer to have their employees being free and clear of any financial risks and may be of the view that an employee’s declaration of bankruptcy creates an operational risk for the firm. The reason for this is that the financial service provider may consider the employee’s weak financial standing as an unwanted exposure to operational risk (i.e. risk of bribery, insider trading, misappropriation of client funds, etc.).  

Appreciating the inherit risk a bankrupt employee creates for an employer, Consumer Affairs advises the general public to first confirm whether their employment contract stipulates that:

• You must remain in good financial standing (i.e. not declared bankrupt); and/or
• You must report your declaration of bankruptcy to your employer immediately.

Depending on the terms and conditions specified in your employment contract, a declaration of bankruptcy may render your employment contract void. Consequently, Consumer Affairs cannot understate the importance of reviewing the terms and conditions of your employment contract before filing a bankruptcy application with the courts.

If you are employed and do not work in the financial sector it is possible, that you might experience issues as a result of being declared bankrupt.  In response to your declaration of bankruptcy, your employer might place restrictions on the kind of work you can do in order to minimize their exposure to any operational risks (i.e. limited access to confidential information, limited access to financial reports, restricted access to company funds, etc.).

Appreciating the impact a declaration of bankruptcy may have on your employment status, it is important to note that declaring yourself bankrupt may also impact your ability obtain a job in certain industries in the future (i.e. financial services, the civil service, Bermuda policy or a security firm, etc.)

If you have decided that declaring yourself bankrupt is the right option for you and will allow you to better manage your accumulating debt, you will need to follow the application process outlined in The Bankruptcy Act 1989 and The Bankruptcy Rules 1990 carefully.  

Appreciating the legal intricacy associated with‍, the below steps are intended to act as general guidance.  Given the complexity associated with applying for bankruptcy status, in order to successfully submit such an application is it advised that you obtain the services of a lawyer.  

Furthermore, by obtaining the services of a lawyer they will be in a position to discuss in detail whether filing personal bankruptcy is right for you and may be able to refer you to a personal financial advisor that may be able to assist you in managing your personal finances and avoid the need for filing for bankruptcy.

After you have been declared bankrupt the courts will appoint an Official Receiver to oversee your bankruptcy.  The Official Receiver is tasked with the responsibility of overseeing control of your property and assets and ensure the active repayment of your debts covered by your declaration of bankruptcy.

Upon being declared bankrupt you will be obligated to comply with all performance obligations and instructions imposed by the Official Receiver.  Failure to actively comply with the Official Receiver may result in you facing additional performance obligations, further financial restrictions and/or financial penalties.

After you have been declared bankruptcy your creditors of debts covered under your bankruptcy will no longer be able to pursue you for repayment.  However, the Official Receiver will require you to enter in a court mandated debt repayment schedule and make monthly payments towards the debts covered by your bankruptcy status; particularly if you have money left over after paying your monthly essential expenses and “reasonable living costs” (i.e. rent, utilities and groceries).

Appreciating that the purpose of declaring bankruptcy is to alleviate yourself of the pressure of having to actively manage creditors and the repayment of any associated debts, you will be expected to make payments towards your bankruptcy covered debts in conjunction with a court mandated debt repayment schedule.  Fortunately, any court mandated debt repayment schedule will likely be more lenient than those sought after by your creditors were they to continue repayment through legal proceedings.  

If you do not generate enough monthly income to cover your essential and reasonably living costs and make payments towards your bankruptcy covered debts, you will not likely have to pay any money towards your bankruptcy covered debts until either:

• Additional forms of income are obtained (i.e. an additional part time job, inheritance, personal injury claim compensation, etc.); or
• Essential and/or reasonable living expenses are actively reduced (i.e. move into a smaller home with cheaper monthly rent, remove children from private school/university, sale of motor vehicle to repay motor vehicle loan, etc.)

Appreciating that the courts may not require you to make payments towards your bankruptcy covered debts until your personal financial circumstances improve, the courts may not require you to make payments towards your bankruptcy covered debts if your only source of monthly income is through benefits (i.e. financial allowance from Financial Assistance) and/or your private pension.

However, it is important to remember the declaration of bankruptcy will not cover all of your debts and you will likely need to make more larger payments for any debts that do not form part of your bankruptcy (e.g. child maintenance, personal loans, student loans).   Any debt not considered a part of your bankruptcy will result in the associated creditors continuing to have the freedom to:

• Pursue your debt in court in an attempt to force the imposition of an aggressive debt repayment schedule; and
• Bring your matter before court should you fail to comply with any court-imposed debt repayment schedule (i.e. Judgement Summons, Warrant of Arrest, Committal to Prison).

After you have been declared bankrupt most types of creditors must refrain from contacting you to get you to pay what you owe them.   This means that the creditors of the debts covered by your declaration of bankruptcy must not:

• Do anything to try to get money from you to repay the debt; and
• Start any new court action against you unless they get express permission from the court to do so.

Although a creditor of a debt covered by your bankruptcy cannot contact you to make a payment, absent expression permission from the courts, the creditor can still send you letters to tell you the balance of your account.

If a creditor of a debt covered under your bankruptcy is found asking you to pay them, Consumer Affairs advises that you confirm whether the debt is covered by bankruptcy.  If the debt is covered by your declaration of bankruptcy, Consumer Affairs advises that you:

• Do not pay the creditor;
• Inform the creditor that you have been declared bankrupt;
• Inform the creditor that your debt held with them is covered under your bankruptcy; and
• Contact the Official Receiver and inform them about the creditor.

If the debt is not covered by bankruptcy the associated creditors are allowed to carry on chasing you for payment.  It is important to note that declaring yourself bankrupt does not exempt you from having to repay certain kinds of debts.  Debts which are not covered by a declaration of bankruptcy includes, but is not limited to:

• Secured debts (e.g. mortgage or personal loan secured through your home);
• Child maintenance and child support payments in arrears;
• Student loans;
• Any payments a court has ordered you to make under a confiscation order;
• Rent arrears - your landlord can't force you to pay your rental arrears but if you don't they may be able to evict you.

If you possess debts that not covered by your declaration of bankruptcy, Consumer Affairs advises that you contact your respective creditors immediately with the intention of negotiating a debt repayment schedule. For further guidance on which debts are not covered under a bankruptcy declaration please see above.

After a year of being declared bankrupt you will usually be discharged from bankruptcy if your financial circumstances have positively improved and/or you have been actively compliant with any income payment plan imposed by the Official Receiver.

If your financial circumstances have not positively improved and/or you have not been compliant with any income payment plan, it is likely that your bankruptcy status will be extended. If your bankruptcy status is extended until further review, you will be told by the court what you will have to do in order to get your bankruptcy status discharged (i.e. fully repay your debts not covered by your declaration of bankruptcy).

When you are discharged from bankruptcy you are freed from any debts that were included in your bankruptcy as you will likely have repaid such debts over the course of your bankruptcy period. However, upon being discharged you will be obligated to begin repaying any debts that were not covered by your declaration of bankruptcy.

If your partner is declared bankrupt you will need to know what will happen to any joint debts and joint assets you have with them.  As a result of your partner being declared bankrupt you may find that your rights to your home and belongings of value may be compromised.