Bankruptcy – The Process Article

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Bankruptcy – The Process

Bankruptcy is the inability or impairment of an individual to pay their creditors. It is a legal status that sadly affects many people throughout the UK every year.

Author: Carolyn Clayton

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Bankruptcy is the inability or impairment of an individual to pay their creditors. It is a legal status that sadly affects many people throughout the UK every year.

One of the main purposes of bankruptcy is to give an unfortunate debtor a fresh start in life by relieving them of most of their debts and as a way of repaying the creditors in an orderly manner. Bankruptcy allows debtors to be discharged from the legal obligation to pay most debts by submitting their non-exempt assets, if any, to the jurisdiction of the bankruptcy court for eventual distribution among their creditors.

Bankruptcy can be filed in two ways. Either your creditor will file a bankruptcy petition against you in an effort to recoup a portion of what they are owed, which is known as involuntary or more commonly you will file for bankruptcy yourself, which is known as voluntary. When you file for bankruptcy you will need to fill in a petition containing your financial information.

With the introduction of the Enterprise Act 2002, UK bankruptcy will not last longer than 12 months but during these 12 months it is essential that you give details of your finances and assets to your ‘official receiver’ as well as informing them of any new assets or income that you are receiving. You are also under obligation to stop using credit cards and to not attempt to obtain money over the value of between £250 and £500. So who is this ‘official receiver?’

An official receiver is appointed to protect you if you have no assets. Non essential assets such as property and possessions as well as excess income are used to pay off your creditors. If you do have such assets they will be sold off to your creditors via someone who is known as an insolvency practitioner.

If you are filing your own bankruptcy you need to obtain a form from your local county court that will cost you £150 plus a £310 deposit. If your creditor if filing bankruptcy against you, which they can do if you owe more than £750, it is important that you co-operate fully even if you dispute the bankruptcy claim.

Filing for bankruptcy is a serious matter so it is important that you consider the alternatives before you carry out any drastic measures. Some of the alternatives that are open to you instead of filing for bankruptcy are:

• Informal agreements - you write to your creditors and try to agree a repayment timetable
• Individual voluntary arrangements (IVA) - an insolvency practitioner helps you negotiate repayment terms
• Administration orders - a county court orders you to make payments to the court, which the court then distributes amongst your creditors

Whilst you are legally classed as being bankrupt you still need to meet commitments such as rent or any debts that are incurred after your bankruptcy.

If you require anymore information about bankruptcy it is important that you speak to an advisor about whether this is the best cause of action for you to take.

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