Bankruptcy & Debt
Bankruptcy is a possibility for those with severe debt problems, but it should be considered as a last resort. Many people are not precisely clear on what bankruptcy is and how it can affect your life. Bankruptcy is not a permanent thing, so many choose it as a way of clearing debt and starting anew. However, there are serious legal and social implications, and all of these need to be considered.
What is bankruptcy?
Bankruptcy is a form of legal status in which your non-essential assets and any spare income is used to pay off your creditors. This usually lasts for a set period, and at the end of this period, the debts are discharged. Bankruptcy usually lasts for a year, but the implications can last much longer. It is not a quick-fix method of clearing debt.
How does someone in debt declare bankruptcy?
A court will present a bankruptcy petition, and then can declare a debtor bankrupt using a bankruptcy order. Alternatively, a debtor can fill in and file their own bankruptcy petition, downloadable from the Insolvency Service website. The form should be taken to a court with bankruptcy jurisdiction. At this point. A £150 fee and a £345 deposit for official receiver's work must be paid, although the fee can be waived in some cases. Creditors can also present a creditor's petition to the court to make you bankrupt.
What happens next?
If at all possible, the debtor should try to reach an agreement before the petition is due to commence. After it has happened, reversing the process is much harder. Bankruptcy can leave a debtor with very few possessions and without a home.
What bankruptcy alternatives exist?
There are alternatives to bankruptcy, including an informal agreement or IVA, or an administration order.
Who handles my bankruptcy case?
The case will take place at a nearby county court and an Official Receiver will protect the assets. An Insolvency Practitioner is appointed to sell any assets to pay off debt to the creditors. Payment becomes the responsibility of these trustees.
What are the implications of bankruptcy?
Bankruptcy will result in the affected party losing his or her possessions. Some goods will not be listed as assets, including essential work equipment and household items. The Official Receiver will also consider the income of the bankrupt, and decide how much can be paid to creditors. If the debtor tries to avoid paying, an income payments order can be applied for.
What am I legally bound to do as a bankrupt?
If you have declared bankruptcy or bankruptcy has been declared against you, you must provide the receiver with details of finance, assets and creditors. You must also declare any new assets or income. You must stop using credit cards or bank accounts, or obtain credit over £500 without informing the creditor of your status. A person who is bankrupt must not make direct payments to creditor (although there are exceptions to this.)
Does bankruptcy last forever?
Bankruptcy will last for a one year period, at which point you will be discharged from your bankruptcy. However, in some cases it can last for more or less time.