Bankruptcy advice needed

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  1. #1

    Bankruptcy advice needed

    A family member let's call him David has a huge credit card debt. He doesn't make much at the moment en is intending to work like crazy for years and continu the payments.

    Years ago his parents donated him a village house which he rebuilt 2 years ago with his parents money. Selling the house would not cover the whole debt.

    His parents are anxious to protect the house in case David should file for bankruptcy one day. Any suggestions what to do? They would like to keep the house in the family. Would selling/donating the house to a family member be a good solution?

    In case anyone is wondering: I am not David


  2. #2

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    Had a similar issue a few years ago with my sister. The big problem we had as a family was not the house (which is bricks and mortar) but her daughter - who was only 7 and did not deserve to be thrown out on the street because here parents were irresponsible idiots. Our key concern was WHY did this happen - and could it happen again? So we focussed on solving the why. If your situation is an addiction of some kind, then you are in dire straits and need to take protective action. If it was an unfortunate turn of events outside control, then you are probably fine, just give him support and let him work his way thru it.

    My parents realised that lending money to my sister was probably a waste of time since she showed no inclination to understand the meaning of the word debt, so they paid off her debts and they changed their will so it comes out of her inheritance. Then they forced her to cut up all her credit cards, made her do a budget and have been "monitoring" her behaviour closely ever since. Seems to be working......


  3. #3

    Thanks MovingIn07.

    To answer your question, yes it is an addiction which he revealed suddenly now he realizes he is in deep water. The saddest part is, the family is not rich and if the bank were to take the house the whole family has to move.

    I admit it's Davids own stupidity and trying to save the house sounds like egoistic and irresponsible but they got no choice.


  4. #4

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    Find yourself a good local law firm (Avoid the central / overseas firms) who can offer some advice on this situation.


  5. #5

    Thanks KIA.

    They definitely need a lawyer and I also want to hear the members opinion. There are very smart guys on here.


  6. #6

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    Transferring an asset such as a property to thwart creditors is an offence and the transaction would almost certainly be investigated and probably reversed by the Official Receiver should David file for bankruptcy.

    How much is the debt and how many creditors are there? An IVA may be more circumspect in this instance. Credit card companies don't usually make people bankrupt as their debts are usually unsecured so they have no guarantee of collecting.

    As you say that 'selling the house would not cover the whole debt' it seems 'David's' liabilities must be huge and this would make it even less likely that the credit card company(ies) would push to make him bankrupt as the debt is unsecured and making an individual bankrupt with no guarantee of recovery can be a costly and fruitless exercise. Amex and MBNA are usually the most aggressive in this respect but normally go for a charge on a property and then ultimately an enforced sale rather than banktuptcy.

    Entering into an IVA has two main advantages - first it freezes all creditor action (including court action) and freezes all interest. Second, up to half the debt may be written off provided you keep up the monthly payments usually over a period of 36 -60 months. The downside is that if you do not keep up the repayments the creditors have the right to bankrupt you.

    David will have to consult an Insolvency Practioner' in HK to set up an IVA and a monthly management fee would be payable.

    If you have assets to protect then an IVA is normally preferable to bankruptcy although it concerns me when you imply his liabilities exceed his assets. If there is a big difference in these two figures then if the situation is really hopeless bankruptcy may be the better option. Need to know really by how much his liabilities exceed his assets.

    A one hour appointment with an insolvency practitioner would be the best move initially.

    With crippling monthly interest charges, late payment penalties and the stress of dealing with collection action the worst thing David can do is to bury his head in the sand over this issue.


  7. #7

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    And you need to tackle the addiction, because he is sick and will revert to form if not carefully monitored, counselled etc etc. Then you have the same or worse problems all over again.

    In terms of transferring the house, I'm not a lawyer, but if other people live in the house do they not have any rights here in HK? Some other places the non-defaulting people in houses have rights which prevent houses being sold from under them in these situations. As others have said, lawyers best placed to answer this.


  8. #8

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    If a property is claimed by the OR (Official Receiver) he/she will first invite any member of the bankrupts family to purchase the beneficial interest in the property (assuming there is some equity although from the original post I am unclear if there is any equity).

    It is important that this procedure is followed rather than a potential bankrupt transferring the property illegally at below market rate prior to bankruptcy to put the asset out of reach of creditors.

    The OR normally agrees not to realise the sale of a bankrupt's property for up to 12 months to allow for a) a bankrupt's family to purchase the benefical interest of the bankrupt at prevailing market rates if they so wish or, in the alternative b) to give the other family members sufficient time to find other accommodation.

    Money realised from either the sale or the transfer of the bankrupt's beneficial interest (i.e equity in the property over and above any mortgage/charges/liens etc) will be used to repay creditors less the Receiver's fees (which can be substantial).


  9. #9

    Thanks guys for all your great advice. I appreciate a lot.

    shilo507 you know a lot about this stuff.

    David is a lucky guy. A relative is willing to buy his house and help him pay off his debt.


  10. #10

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    This kind of situation is so stressful for a family so I hope the family will stop bailing David out (it's really not doing him any favours) and instead get him the professional help he needs.