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Bankruptcy > What is bankruptcy?

Bankruptcy is one way of dealing with debts you cannot pay. The law is there to;

· Free you from overwhelming debts so you can make a fresh start, subject to some restrictions; and

· Make sure your assets are shared out fairly among your creditors.

Anyone can go bankrupt, including individual members of a partnership. There are different insolvency procedures for dealing with companies and for partnerships themselves.

Bankruptcy is one way of dealing with debts you cannot pay. There are alternatives…

An individual can be made bankrupt either in one of three ways:

· Voluntarily - By the debtor themselves. COST as of April 2010 is £600.00

· Involuntarily - By the creditor owed money (£750 Minimum).

· The supervisor or anyone bound by an IVA

A bankruptcy order can still be made even if you refuse to acknowledge the proceedings or refuse to agree to them. You should therefore co-operate fully once the bankruptcy proceedings have begun. If you dispute the creditor’s claim, you should try and reach a settlement before the bankruptcy petition is due to be heard. Trying to do so after the bankruptcy order is made is both difficult and expensive.

What are the implications of bankruptcy?

· You lose control of your assets.

· You cannot obtain credit for over £250 without the permission from the lender.

· You cannot act as a company director.

· You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.

· You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.

· You may not practice as a Charted Accountant / Lawyer.

· You may not act as a Justice of the peace (JP).

· You may not become an member of parliament.

· You may not become a member of the local authority.

· Your credit is affected for many years after the annulment.

· You may be publicly examined in court.

· What are the advantages of bankruptcy?

· For the person involved, bankruptcy provides relative peace of mind and possible automatic discharge after one year (or less in some cases).

· For the creditors, bankruptcy allows a full investigation of the debtor's affairs to be carried out.

From Wikipedia, Definition

Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a business or corporate debtor ("involuntary bankruptcy") in an effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the debtor (a "voluntary bankruptcy" that is filed by the insolvent individual or organization). An involuntary bankruptcy petition may not be filed against an individual consumer debtor who is not engaged in business

Duties of trustees

Some of the duties of the trustee in bankruptcy are to:

· Review the file for any fraudulent preferences or reviewable transactions

· Chair meetings of creditors

· Sell any non-exempt assets

· Object to the bankrupt's discharge

· Distribute funds to creditors

Creditors' meetings

Creditors become involved by attending creditors' meetings. The trustee calls the first meeting of creditors for the following purposes:

· To consider the affairs of the bankrupt

· To affirm the appointment of the trustee or substitute another in place thereof

· To appoint inspectors

· To give such directions to the trustee as the creditors may see fit with reference to the administration of the estate.

FAQs

Is my employer informed?

In most cases your employer need not be informed; however certain jobs hold bankruptcy restrictions and would advise that you obtain information from your contract or HR department to whether a bankruptcy will affect your employment.

I am worried that my name will appear in the local paper.

Until recently the name and address of everyone in your area who had gone bankrupt would be published in your local paper. However, following the introduction of the Insolvency Amendment Rules 2009 (effective 6th April 2009) your name would not appear in the local paper apart from exceptional circumstances. The Official Receiver is only allowed to advertise based on the following rules –

· Where there has not been a full disclosure of relevant financial affairs.

· Where there has been a high level of complaint or public concern in the local community.

This means that unless you have been dishonest in the petition or are a business that has had complaints made against it then your name would not appear in the local paper. This would be the case for most people. You can check this information out for yourself. See sections 5.1 and 5.40 to 5.44 of the insolvency service technical manual which is freely available to view.

Will I be able to have a bank account?

There is absolutely no restriction in law regarding having a bank account through the bankruptcy process. The reality is that after to you get your bankruptcy order, the Official Receiver will contact your bank and they may freeze your account for a period of time (usually just a few days). After this your bank would normally allow you to continue with a basic account. However, if your bank no longer wishes to have your business then you will be given your money back and can open an account with another bank that has no restriction on customers going through bankruptcy.

But I’ve heard that bailiffs come to my home if I go bankrupt
It is true that years ago bailiffs would come to your home to take your possessions when you got a bankruptcy order. Fortunately this is now history. Since the introduction of the Insolvency Act 1986 that outlines most of the legislation in modern bankruptcy there is a comprehensive section on Exempt Property, this is covered in section 283(2). Basically ‘exempt property’ covers all the things that are not considered as part of the bankruptcy estate, this essentially includes all of the usual things that you have in your home such as clothing bedding, furniture and general household equipment.

Will I lose my car ?

If you need your car for work or to get to and from work and the trade value is less than £2,000 then your vehicle would usually be exempt from the bankruptcy estate. This is also covered in Section 283(2) of the Insolvency Act 1986. Even if the value exceeds £2,000 then an arrangement can be made with the Official Receiver for you to keep it providing a third party can pay the difference between £2,000 and the trade value, or the vehicle would be collected and sold and you could be given £2,000 to purchase a replacement. A vehicle on finance is usually exempt as well providing that the finance company is in agreement and that there is more to pay on the finance than its value.

Bankruptcy Alternatives

Consider looking into a Debt Management Plan or an IVA. Both options are alternatives to bankruptcy. For more information call us today.