All the facts about bankruptcy
Being made, or declaring yourself bankrupt is pretty much the end of the line in terms of debt management. It should not be considered before all other options for clearing your debt have been explored, especially an Individual Voluntary arrangement (IVA). An IVA has a number of advantages over bankruptcy but if they are not an option for you then you may have no option but to consider bankruptcy.
Any individual or partnership can go bankrupt, although companies have other remedies available to them for clearing debt.
You do not have to agree to be made bankrupt. Whilst many do choose to declare themselves bankrupt, your creditors can petition for your bankruptcy if you owe more than £750. In addition to voluntary (where you agree to bankruptcy) and involuntary (where someone petitions for you to be made bankrupt) a supervisor or someone bound under the terms of an IVA can also launch a petition.
If you are being petitioned for bankruptcy by a creditor then you should do all that you can to agree some form of settlement before the petition is granted. You will have little control or influence after a petition has been granted and it could incur additional and unnecessary costs.
The petition for your bankruptcy will have to be granted by a court. They will agree to the appointment of a trustee who will be responsible for discovering and administering your assets so as to obtain as much as possible for the creditors. The Trustee will either be a licensed insolvency practitioner or the Official Receiver (a court official). Once the petition is granted by the court, the creditors can no longer pursue you and will look to the Trustee for payment. Those who are bankrupt for the first time should have their petition discharged after a year.
All your assets will come under the control of the Trustee. If you own a home you will be given a period (up to 12 months if there is a family involved) to find alternative accommodation before it is seized and sold. If the property is jointly owned by another then they will have the opportunity to buy your share from the Trustee.
In addition to losing control of your assets, you will have a number of restrictions that will affect the way you live and work. You will be able to keep tools and books and other low value items that you need to gain work. You may also be allowed to retain a vehicle (provided it is of low value). Additionally, you will be able to keep some furniture, bedding, clothing and basic household goods. Of more import is what you cannot do. You cannot be employed into certain prescribed roles; be involved in managing a business in any senior way (including indirectly) without the permission of the court; obtain any credit in excess of £250 without disclosing that you are undischarged as bankrupt or set up a business in anything other than the name in which you were declared bankrupt. If you have surplus funds over your agreed living expenses then you must declare these to the Trustee who will distribute them amongst the creditors.
Your bankruptcy can be reversed at any time if you are able to demonstrate that:
o The bankruptcy should not have been made due to an error in procedure;
o You have paid off all your debts to the satisfaction of the court; or
o You have reached an agreement with creditors under an IVA.
Although you may be discharged from bankruptcy within a year, you may not regain control of assets that were surrendered but not yet disposed of by the Trustee. This could include some pension funds, life assurance policies or property. The Trustee may still be able to claim some of your assets after you have been discharged so you must declare your financial status to the official Receiver or your Trustee on a regular basis. If the bankruptcy occurred because of fraud, crime or fines then you may not be discharged after a year.
If you have been declared bankrupt in the previous fifteen years, then you will not be discharged from your current bankruptcy for a period of at least five years.
Bankruptcy relates to your debts as they were at the time the petition is granted. If you subsequently incur further debts it could result in a second bankruptcy petition (even if the first has not yet been discharged) or a criminal charge if you obtained that credit without disclosing that you were an undischarged bankrupt.