Bankruptcy Explained

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Bankruptcy Explained

Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due. A first time bankrupt with debts will generally receive their discharge one year after the date of the bankruptcy order (there is the possibility that in some cases the bankruptcy discharge period will be less than one year). Although bankruptcy has a bad stigma and is publicly advertised, it should always be considered when dealing with individual insolvency cases.

The Bankruptcy Proceedings:
Anyone can go bankrupt, including individual members of a partnership; although there are different insolvency procedures for dealing with companies and for partnerships themselves.

• free you from overwhelming debts so you can make a fresh start, subject to some restrictions
• make sure your assets are shared out fairly among your creditors.

How are you made bankrupt?
Bankruptcy petitions are usually presented either at the High Court in London or a County Court near to where you live or trade. A petition can be presented against you even if you are not present in England or Wales at that time, providing you normally live in, or have a recent residential or business connection with, England or Wales.

If you want to make yourself bankrupt you should contact your local Court. They can give you the name, address and telephone number of the nearest County Court that deals with bankruptcy. The address and telephone number of your local County Court is listed under 'Courts' in the phone book, where you should look for ‘civil Courts - County Courts' and not ‘magistrates' Courts’. An individual can be made bankrupt either in one of three ways:

• Voluntarily - By the debtor themselves
• Involuntarily - By the creditor owed money (£750 Minimum)
• The supervisor or anyone bound by an IVA

A bankruptcy order can still be made even if you refuse to acknowledge the proceedings or refuse to agree to them. You should therefore co-operate fully once the bankruptcy proceedings have begun. If you dispute the creditor’s claim, you should try and reach a settlement before the bankruptcy petition is due to be heard. Trying to do so after the bankruptcy order is made is both difficult and expensive.

What will happen at court?
The Court will either hear your petition straight away or arrange a time for the Court to consider it. At the hearing the Court can do one of four things:

1. Stay (delay) the proceedings - often because the Court needs further information before it can decide whether to make a bankruptcy order.
2. Dismiss the petition - perhaps because an administration order would be more appropriate.
3. Appoint an Insolvency Practitioner - if the Court thinks that an Individual Voluntary Arrangement would be more appropriate. This will only be possible if your assets are more than £2,000; your unsecured debts are less than £20,000; and you have not been bankrupt or made an Individual Voluntary Arrangement in the previous five years. If you do not wish to enter into such an arrangement, you should inform the Court.
4. Make a bankruptcy order - you will be bankrupt the moment the order is made by the Court.

What are the advantages of bankruptcy?

• For the person involved - bankruptcy provides relative peace of mind and possible automatic discharge after one year (or less in some cases)
• For the creditors - bankruptcy allows a full investigation of the debtor's affairs to be carried out

What are the disadvantages of bankruptcy?

• You lose control of your assets.
• You cannot obtain credit for over £500 without the permission from the lender.
• You cannot act as a company director.
• You cannot take any part in the promotion, formation or management of a limited company without the permission of the court.
• You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
• You may not practice as a Charted Accountant / Lawyer.
• You may not act as a Justice of the peace (JP).
• You may not become an member of parliament.
• You may not become a member of the local authority.
• Your credit is affected for many years after discharge.
• You may be publicly examined in court.

How much will it cost to make myself bankrupt?
There are three fees you may have to pay:

1. The Court fee of £175
   In some circumstances the Court may waive this fee; for example, if you are on Income Support. If you are not sure whether you qualify for a reduction in the fee, or if you are exempt from paying the fee, Court staff will be able to advise you.
2. The deposit of £525 towards the costs of administering your bankruptcy
   This deposit is payable in all cases.
3. The fee to swear the statement of affairs
   In a County Court, no charge is made to swear the 'statement of truth', which is part of your statement of affairs. But in the High Court or before a solicitor there is a £7 charge.

If you are a married couple and you are both applying for bankruptcy, you will each have to pay separate fees. If you were in business as a partnership, each partner will have to pay separate fees, unless all the parties apply for a joint bankruptcy petition under the Insolvent Partnerships Order 1994 (Form 16). The above fees should be paid in cash, postal orders, or by a building society, bank or solicitor's cheque. Cheques should be made payable to H M Paymaster General. Personal cheques will not be accepted.