Bankruptcy

You may consider bankruptcy if you are unable to pay off your debts in the foreseeable future. It will almost certainly involve the sale or closure of any business you are involved in and the loss of any major asset you have such as a house or other property. There are also many restrictions imposed upon you for the future, so you need to consider the alternatives to bankruptcy first.

There are two ways of becoming bankrupt. You can either petition for your own bankruptcy (by debtor's petition), for which there would be a fee payable. Or, if you owe your creditors more than £750, they can petition for your bankruptcy (creditor's petition). In reality, most creditors will only result in filing for your bankruptcy in the most extreme cases.

What Happens in a Bankruptcy Case?

In order for a creditor to make you bankrupt, they will have to prove to the court that you have no reasonable way of repaying your debts. By way of a petition from the creditor, the court will then decide whether or not this is the right option.

If bankruptcy is agreed, an Official Receiver is appointed. The official receiver will apply to the court to recover any money that you earn which is not essential to your living costs. They can also claim any assets that you have to put towards the money you owe. If you own your own home it may need to be sold and the money raised used to repay creditors.

You will be asked to provide a detailed list of all your personal assets, and of any other debt you have not included in the bankruptcy proceedings. You will have to stop using any bank or building society account and will not be allowed to apply for any credit (this includes using a credit card).

Once you are bankrupt, certain restrictions will come into effect.

• It will be a criminal offence for you to obtain credit of more than £250, either alone or jointly with another person, without disclosing the bankruptcy. This also applies to hire purchases and rental agreements.
• You may apply for new bank or building society accounts, but you must inform them of the bankruptcy proceedings. If you are found to have more money in your account than is absolutely necessary for normal living expenses, your trustees can claim the extra to pay your creditors.
• You may not manage, promote or start a new business without the court's permission.
• It is also a criminal offence to carry on with an existing business in a different name without telling those you do business with there is a bankruptcy order against you.
• You can usually be discharged for the bankruptcy after three years, unless you have been bankrupted in the previous 15 years. Once discharged, you will usually be released from most debts, the exceptions being those debts gained through fraud, criminal activities and fines.
• Once discharged, any assets acquired after the date of the discharge are not bound by the conditions of the bankruptcy and may be kept.
• You can be made bankrupt more than once, but a second bankruptcy order may have more serious consequences.