Bankruptcy
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Bankruptcy is a way of dealing with the debts an individual is unable to pay. It is a process designed to free you of overwhelming debts so you can make a fresh start, subject to some restrictions, and ensures that your assets are shared out fairly amongst your creditors.
What is Bankruptcy?
Bankruptcy is a process designed to free an individual of unmanageable debt. It involves the realisation of all of the individual’s assets to discharge, in full or in part, their liabilities (debts). Assets will include any interest the Bankrupt may have in a matrimonial home, physical assets such as cars and possible interests in investments.
Key points of Bankruptcy are:
How does Bankruptcy work?
To be made bankrupt, an individual must be insolvent, as in they are unable to pay a debt when it is due, or their liabilities outweigh their assets. An individual may apply for their own Bankruptcy or a creditor may Petition the Court for a person’s Bankruptcy.
Once made bankrupt, the individual will be sent an information pack and will be asked about their financial affairs, assets they may have, any income they receive and their details regarding who they owe money to (creditors). The Trustee will collate the information received as well as undertake their own investigations to ensure that all available assets are realised for the benefit of creditors.
Once all available assets are realised, these funds will be distributed to creditors.
Whilst bankrupt, the individual is restricted from being a Director of a limited company, running a company without the permission of the Court, borrowing more than £500 without telling the lender that they are bankrupt, holding some jobs such as MOT authorised examiner, charity trustee or registrar to name a few. They are also unable to hold lasting power of attorney for another person and use a different business name (if they are self-employed) without telling customers about their bankruptcy.
If the Trustee discovers that the individual has been dishonest (by hiding their assets or breaking the terms of their bankruptcy) they can apply to the Court for a Bankruptcy Restriction Order. A Bankruptcy Restriction Order can be granted for up to 15 years and whilst the subject of this Order, the individual is barred from being a local or national politician, magistrate or school governor in addition to the standard Bankruptcy restrictions.
In the vast majority of cases, after one year, the Bankruptcy period will end, and the individual is ‘discharged’.
Three months after discharge, details of the Bankruptcy will be removed from the Individual Insolvency Register and six years after the Bankruptcy, details are removed from the formerly bankrupt person’s credit files.