Bankruptcy

Bankruptcy is a legal process where an individual declares they are unable to pay their creditors.

A person known as a ‘Trustee’ will be appointed to manage your bankruptcy. Your Trustee will either be an Official Receiver (an officer of the bankruptcy court) or an insolvency practitioner. Your trustee will manage the payments to your creditors through the sale or disposal of your assets. Normally, Bankruptcy lasts for one year. In some cases, your spare income can be used to help pay your debts. This arrangement can last for three years and is known as either an Income Payments Order or Income Payments Agreement.

In certain cases Bankrutcy may be a suitable option but there are alternatives that may also be suitable including the Debt Relief Order.

There are significant consequences of opting to take a bankruptcy route as you will lose control of your assets can lose your home. It will have a significant impact on your credit rating as Bankruptcy will be recorded with credit reference agencies for between 6 and 15 years depending on circumstances. Any future loan or mortgage application is likely to ask for any previous bankruptcies to be declared.

If you are self-employed, bankruptcy will mean the closure of your business with restrictions on future self-employment whilst in bankruptcy –

• you must not borrow more than £500 without telling the lender you are bankrupt

• you must not create, manage or promote a company without the court’s permission

• you must not manage a business without telling those you do business with you are bankrupt

• you cannot act as a director of a company

It can also affect you if you are an employee. For instance, you cannot be a solicitor, the Trustee of a Charity, or undertake a role regulated by the Financial Services Authority. You should check your contract of employment or with your HR department before applying for bankruptcy.

There are costs attached to Bankruptcy. Currently this is £700 in England and Wales made up of a court fee of £175 and a fee to the official receive of £525.

Bankruptcy hearings are heard in a court where a decision to make you bankrupt immediately, issue an administration order, delay proceedings for more information or look at alternative solutions like an IVA (Individual Voluntary Arrangement) will be made.

All information regarding your financial affairs, details of property owned and details of redundancy and pension plans will be required and it may be possible to attend a meeting of creditors.

All other options should be explored and considered before considering Bankruptcy but this can be the best solution dependant on circumstances.