Bankruptcy is one method that can be used when you are unable to pay your debts. Your assets can be used in order to pay off your creditors.
When you are made Bankrupt or declare Bankruptcy, there are certain restrictions and you are normally discharged after a period of time has passed.
Where to get help?
There are several organisations who can help you with Bankruptcy. They are listed on the helpful links section of this blog.
How do you apply for Bankruptcy?
Anyone is able to apply to the court to make them or someone else bankrupt. This includes individuals, sole traders, and members of a partnership. Different procedures apply for companies and partnerships.
Only the Court can make you bankrupt. Not all Courts deal with Bankruptcy cases. You can make yourself bankrupt by petitioning or in other words, applying to the court. Your creditors can also petition the court if you owe them at least £750 or more. You become bankrupt when a court issues a bankruptcy order against you.
There are fees and procedures you need to follow. There are different rules in Scotland and Northern Ireland.
Who looks after your Bankruptcy?
When you are made Bankrupt, you are required to hand over any assets of value and the financial interest in your home to a person appointed to manage your bankruptcy. This person is known as the trustee.
The trustee will either be an Official Receiver or an insolvency practitioner.
It takes time to appoint a trustee, so the Official Receiver will manage your bankruptcy during the initial stages. The OR will collect information about your finances, and also protect your assets from your creditors.
If you have significant assets, the likely outcome is that the Official Receiver will ask your creditors to appoint an insolvency practitioner as a trustee. If you don’t have a lot of assets, then the Official Receiver will act as the trustee.
Bankruptcy – what are your responsibilities and restrictions?
There are certain restrictions you are required to agree to when you are made Bankrupt.
You must fully co-operate with the Official Receiver and Trustee.
You are required to hand over your bank and credit cards over to the Official Receiver.
Not making any payments to your creditors. This is known as a none payment rule.
There are some exceptions to the none payment rule, but these are very limited. You are required to continue making payments to debts that are not listed on your bankruptcy order. Some examples of this are court fines and student loans.
How does Bankruptcy affect you?
Bankruptcy will normally result in the closure of any businesses you run and the dismissal of your employees. If being made bankrupt is disallowed in your contract of employment, you could lose your job. For example, you are unable to work as a solicitor, trustee of a charity or a role that is regulated by the Financial Services Authority.
You will also be required to give up any assets of value and you may also lose the financial interest in your home. Any spare income you may have can be used to pay your bankruptcy debts.
Another effect of Bankruptcy is the effect it will have on your credit rating. Any bank accounts you have will be frozen, and you may be unable to open new ones.
Public Records of your Bankruptcy
The Official Receiver will advertise your Bankruptcy in official records. For example in the London Gazette and the Individual Insolvency Register. These records are used by Credit Reference Agencies to update your credit file.
Organisations such as your Bank will also be notified of your Bankruptcy.
How are your Debts Paid?
Your creditors are informed of your Bankruptcy, and they are required to make formal claims to your trustee for the money they are owed. You are not allowed to make payments directly to your creditors, and they must also not ask for payment.
Your trustee will manage your repayments to your creditors through the sale or disposal of your assets. In some cases any spare income you have can also be used to help pay off your debts. The arrangement can last for three years and is known as an Income Payments Agreement or Income Payments Order.
What happens after you are made bankrupt?
When you are made bankrupt, you are required to attend an interview. The purpose of this interview is so that you can provide details of your debts, assets and financial situation. This will help the Official Receiver to protect your assets for the benefit of your creditors and decide if a trustee is required to manage your bankruptcy.
The Official Receiver investigates the causes of your bankruptcy. A report will then be sent to your creditors. The bankruptcy restrictions can be extended if there is evidence of criminal, dishonest or careless behaviour.
How Long does Bankruptcy Last?
Bankruptcy usually lasts for 12 months. After this time you are discharged from your bankruptcy debts. It may be earlier if the Official Receiver completes their work on your bankruptcy and your creditors don’t object.
Your discharge may be delayed if you break the bankruptcy restrictions or don’t co-operate with the Official Receiver.
Despite being discharged, assets taken to pay of your debts are not returned to you. Your income can also be used for three years to help pay your bankruptcy debts, if you are able to afford it.
Bankruptcy restrictions can last up to 15 years. For example if your bankruptcy was as a result of careless, criminal or dishonest behaviour.
The extension is known as a Bankruptcy Restrictions Order or Bankruptcy Restrictions undertaking.