What is Bankruptcy?
Bankruptcy is a court-led process initiated by a creditor petition filed by a business or individual who is owed money and seeking to have someone declared bankrupt. Following the petition being filed at court, a hearing is scheduled at which the individual is declared bankrupt. The exact timescales can vary depending on the nature of the debt and which party sought to issue the petition in the first instance.
If you’re looking to declare yourself bankrupt, this process has now been moved out of the courts and taken online. Simply complete an online bankruptcy application on gov.uk and you’ll avoid the need for a court hearing. Your case will be heard by an adjudicator at The Insolvency Service (rather than a judge) and it’s their responsibility to review your application and make a decision.
For the avoidance of doubt, only individuals can be declared bankrupt in the UK – corporate entities are dealt with by way of a liquidation.
In Bankruptcy, the estate of the individual is handled initially by a government office called the Official Receiver, who will request the Bankrupt to attend an interview and complete a full questionnaire about their assets and income. If the Bankrupt seemingly has sufficient assets to enable a distribution to his/her creditors, the estate may be passed to an external Insolvency Practitioner who becomes Trustee in Bankruptcy (“Trustee”).
At the point of a Bankruptcy Order being granted, the assets of the individual vest in the Trustee (subject to some exemptions) and the Trustee will seek to have full control over these assets. It is the job of the Trustee to realise the assets in the bankruptcy estate for the benefit of creditors, including any equity in any property.
At Parker Andrews, our Insolvency Practitioners often deal with matters relating to the estates of bankrupt individuals and act as Trustees, either through the culmination of creditor action, failed Individual Voluntary Arrangements or via the Insolvency Service. We can however also assist you directly if you wish to take action to deal with your personal finances, whereby Bankruptcy may be an option.
When is Bankruptcy appropriate?
When you have debts that you are unable to pay, and;
You have few or no assets that could be realised for the benefit of your creditors to make an IVA viable
You do not have concerns about maintaining control of your assets
You wish to free yourself from the debts you are unable to repay
Benefits of going Bankrupt
In most cases you will only be subject to restrictions as an undischarged bankrupt for 12 months. Once you have been discharged, you will be released from the majority of your creditors.
If you have surplus income each month, a Trustee will likely ask you to agree to an Income Payments Agreement where you make contributions into the bankruptcy estate for the benefit of your creditors. This is only payable for three years. Creditors bound by the terms of an IVA will most likely want to see a contributions-based IVA last for five years and a remortgage of any property you may own to release further funding.
In most circumstances your pension is a protected asset in bankruptcy and cannot be realised.
However – caution!
The current fee payable to declare yourself bankrupt via gov.uk is £655, which can be paid online in instalments of as little as £5; however, your application will not be processed until the fee is paid in full.
A Bankruptcy period lasts for a standard twelve months, unless you do not co-operate with requests of the Official Receiver or your Trustee in Bankruptcy, which may result in your discharge being suspended.
All assets within your estate vest with either the Official Receiver or Trustee and you will likely retain no control.
Trading is generally more difficult in bankruptcy, as obtaining trade supplies on credit may be difficult. You will have disclose the trading name under which you were made bankrupt.
There are certain debts that you will not be released from in bankruptcy, such as student loans, some matrimonial liabilities, court fines.
Bankruptcy does not prevent any secured creditor taking steps to enforce their security – this may mean you lose your home.
Your bank accounts will be frozen as a result of the bankruptcy whilst your financial affairs are investigated. You may be required to seek alternative arrangements.
If you are a director of a limited company you will have to resign, as a bankrupt cannot act in the formation, promotion or management of a limited company or act as a director.
Your contract of employment may be in jeopardy depending on your occupation, particularly if you are a professional (i.e. solicitor, accountant) or in the police force or armed forces. Security clearance may be removed and difficult to recover.
Any surplus income will need to be paid to your Trustee as part of an Income Payments Agreement, which will last for three years.
Your ability to acquire credit will reduce and your credit rating will be affected for several years. You cannot obtain credit over £500 without disclosing you are bankrupt.
Your bankruptcy will be advertised in the London Gazette and on the Individual Insolvency Register website. It could also be advertised in the local press, although this is less likely.
If you consider that Bankruptcy is the correct solution for you, please contact Parker Andrews for a confidential, no-obligation discussion about your situation.