Bankruptcy is the administration of the financial affairs of an insolvent individual in the interests of creditors by a person known as a trustee in bankruptcy. This process allows the individual’s assets to be sold and the funds from the sale to be distributed to their creditors. It can also free an individual from overwhelming debts, but has some restrictions referred to below.
An application to court for a bankruptcy order may be made by any creditor owed more than £750, or by the individual himself.
Once a bankruptcy order is made by the court, control of the bankrupt’s assets, subject to certain exemptions, pass to the official receiver, a civil servant who will carry out an initial meeting with the bankrupt. The official receiver may continue to deal with the bankruptcy for its entirety or may pass it out to an Insolvency Practitioner who would be known as the trustee in bankruptcy. However, certain assets do not pass to the trustee, including certain tools and equipment needed for use in the bankrupt’s business and basic domestic items such as clothing, bedding and furniture. In addition, usually, pension assets are also retained by the bankrupt.
If a bankrupt has equity in his home, that equity also passes to the trustee in bankruptcy and usually the home will have to be sold. However, the trustee will not force a sale within the first 12 months of the bankruptcy where the bankrupt is married and lives with his spouse, or where he has young children living with him. The bankrupt’s spouse is generally given the opportunity to purchase the trustee’s interest in the property at its current market value, before the trustee forces a sale.
If the bankrupt has surplus income above his reasonable needs and those of his dependents, then he will be expected to make contributions from his income to the trustee for the benefit of the creditors for up to 3 years.
A bankrupt is usually discharged from bankruptcy after 1 year. However, the trustee will remain in office for as long as is necessary to sell the assets and distribute the proceeds to the creditors.
Once a bankrupt is discharged from bankruptcy their creditors can make no further claim upon them for a debt accrued before the date that the bankruptcy order was made.
Other effects of bankruptcy include:
- An undischarged bankrupt cannot obtain credit of more than £500 without disclosing the fact to the provider of the credit that they are an undischarged bankrupt.
- An undischarged bankrupt must not carry on business under a name different from that under which they were declared bankrupt.
- An undischarged bankrupt must not act as a company director without the consent of the court.
- Their credit rating will be affected.
If you wish to discuss any aspect of personal insolvency, or to arrange a free initial consultation, please contact John Hedger or Sarah Gill on 01629 761700. Alternatively, please complete the contact us form on this website and we will get back to you within 24 hours.
There are several useful and informative publications available to download on the Insolvency Service website athttp://www.bis.gov.uk/insolvency/Publications.