two questions for the experts

[Soulgrowth]

I have successfully been in an IVA since October 2006 and all is going well. Prior to even realising that IVAs existed I handed a serious loss making business (card and gift shop) to my daughter who was a partner in either a make or break attempt. Unfortunately due to the current climate the business is still running at a loss and my daughter is now in arrears with the lease payments. The landlord, naturally, is now coming to me for payment. I now feel that the only and best option is to go for bankruptcy, which in many ways is a blessing in disguise both emotionally and financially. However I have two questions which I hope the experts might be able to advise on;

1. Would bankruptcty exonerate me from the lease?
2. Is it better to declare onself bankrupt or to wait until one is pushed into a corner by the creditor (i.e The Lanlord?).

I understand that I need to contact my IP re this but was hoping for some possible objective advice before doing so.

Carry on the great work you folks do.

[MelanieGiles]

Hi deborah and welcome to the forum

Was your contingent liability under the lease not included in your IVA at the time it was proposed? And how long is left on the lease and what is the annual rental? Your landlord has a duty to mitigate his loss if the business ceases trading, so how easily do you think he will find an alternative tenant? If this could be done quickly, you might be better hanging on to see exactly how much you will owe, before jumping into bankruptcy. Does the landlord know that you are subject to an ongoing IVA?

Bankruptcy proceedings will bring and end to your liability under the lease, and the Trustee can then disclaim the asset assuming it has no value. I do not think that your landlord will pursue you to bankruptcy - after all what does he have to gain by paying out £2,000 in Court proceedings.

Do discuss this with your IP, as he has a better day to day appreciation of your case - and good luck!

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Soulgrowth]

Hi Melanie

Thank you very much for your reply. I've read a number of your postings on the Forum and you do such great work ... thank you.

The lease was not included in the IVA ... I think probably because my daughter was continuing trading at the time and there were no debts associated with it? I am also wondering now whether the IP actually overlooked it. I know it is my responsibility to declare everything but I had never understood the ideas of leases in the first place and only now recall someone at some early stage pointing out to me that it would be my liability still ... but because the business was trading under my daughter at that time it did not occur to me. I am worried that I might get into trouble over this now

The Lease is £13,500 pa with ten years still to run. Aplogies for being dim but I do not understand what you mean by this Your landlord has a duty to mitigate his loss if the business ceases trading. The once busy high street the shop is situated in is becoming more deserted by the week now and there are numerous empty shop premises, even the charity shops are closing down now! In my opinion the Landlord will have great difficulty in re-leasing the premises.

The Landlord is not yet aware that I am subject to an ongoing IVA as he has been accepting that my daughter was now running the business and was, at the time, the IVA was going through, paying the rental from her own business account which was being accepted by the Landlord. It seems that it is only now that she has gone into arrears that he has come to me ... some five months down the line.

One option that has been suggested to me by a friend is to write a letter to the landlord offering to relinquish the lease back to him in exchange for him writing off the outstanding monies?

Thank you sincerely once again.

[MelanieGiles]

Hi Deborah

So technically you are on the hook for the next 10 years at £13,500 = £135,000. Did you say that your daughter was a former business partner? If so, is she (or anyone else for that matter) jointly liable for the lease?

The point about mitigating losses, is that your landlord will need to relet the premises, and when he does the rental income he will receive will be deducted from his claim against you - this will be academic if you go bankrupt. As there seems little sign of him letting the premises in the near future, he is likely to start pursuing you. I also am assuming that there is no prospect for you selling the business and transferring the lease to a new owner?

You could ask the landlord to accept a surrender of the lease, and write off the balance owing, but I think that you have little chance of success. Also beware if there are stocks and fixtures and fittings which belong to you on site, the landlord also has the right to distrain over the assets in lieu of his unpaid rent.

If you have nothing to lose by going bankrupt, and the landlord exerts pressure on you to pay, I would go down that route to bring finality to this issue - but do talk things through with your own IP who will have a much better handle on the issues involved with your case than me.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Soulgrowth]

Thank you so much Melanie ... you have confirmed my thoughts completely!

As I see things at the moment the only thing I have to lose is my house (which I cut any emotional ties with a few years ago ... it is just bricks and mortar to me). The value of my property is circa £170,000 ... the outstanding mortgage is £130,000. As part of the IVA I have to remortgage for £25,000. With the interest rate going up my mortgage will be around £900 p.month as from next month. Bankruptcy will technically make four adults and one baby (my daughter who lives with me)homeless ... I suspect that we would have quite a high priority on the council homing list and the rent will be half the amount of mortgage payments so will give me more disposable income to pay back to creditors!

I cannot belive how philosophical I'm being ... but I think thanks to that is largely due the wonderful work you that all the contributors and people like yourself do here Melanie

Lots of love, luck and happiness to all

[MelanieGiles]

Deborah

There is light at the end of the tunnel and you can put this behind you once and for all. Faced with the prospect of bankruptcy, your landlord may be prepared to compromise. Why not tell him about the IVA and cut a deal that he claims in the IVA for one year's worth of rent. You will then need to find extra money from a final year re-mortgage to ensure that the remainder of your creditors get paid the dividend they agreed to, but it will give the landlord something and protect your property.

Just a thought!

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Soulgrowth]

Thanks once again Melanie. Can additional creditors be added to the IVA once it has been set up then?

[MelanieGiles]

Yes - so long as this is with the other creditors consent. Your IP would firstly need to get the landlord's permission to be included, and then call a meeting of creditors to see whether the other creditors would be happy for their inclusion.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Soulgrowth]

I have plucked up the courage to speak with my IP this morning. They were great and very empathetic. My case manager is on leave this week, but we have at least started the ball rolling to address this 'problem'.

The lady mentioned the possibility that the landlord may put a restriction order on my property. Could anyone explain what this might mean and at what stage this can be exerted?

[MelanieGiles]

She possibly means a charging order? This effectively gives the landlord secured status, and you would need to make ongoing payments towards this debt to avoid them enforcing and seeking a possession order. Did you not ask her what she meant during your conversation?

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Soulgrowth]

Hi Melanie

It cropped up during the discussion and the lady said that she didn't want to pluck too many thoughts out of her head until my case manager comes back next week and can have a look at the bigger picture ... just in case she got it wrong. One would imagine that if the landlord put a charge on the house it doesn't make too much difference as it means that he will get the equity as opposed to the other creditors. I am just trying to be prepared for all eventualities at the moment!!! I will let you know how things progress ... you have been such a tremendous help Melanie - thank you once again.