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What is the procedure for Bankruptcy?

Date: (16 February 2012)    |    

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Duncan Lewis:When anyone declares bankruptcy of their business, his or her assets such as home, income and possessions, can be used to pay off their outstanding debts. A declaration of bankruptcy involves official scrutiny of the bankrupt’s financial matters and he or she is placed under a number of restrictions.

Bankruptcy is one way of paying off debts that cannot be paid otherwise, with the debtor’s assets being used to pay creditors, and until the debts have been paid off, the debtor is restricted in financial dealings to a certain extent.

Anyone in any sort of business set-up can make an application to the courts for bankruptcy, and this applies to sole traders, individuals and partnerships. Not every court in the land will deal with bankruptcy cases, but only a court can declare you bankrupt. You can apply to a court yourself to be made bankrupt or, more usually, a creditor will approach a court if you owe them in excess of a certain amount, and then a bankruptcy order may be issued against you.

A trustee will be appointed by the court to manage your case and the management of your assets and financial interests will be handed over to them. The trustee may be an authorised debt specialist (insolvency practitioner) or an officer of the court (Official Receiver). The Receiver will manage the case to begin with because the appointment of a trustee usually takes some time. The role of the Receiver is to manage the bankrupt’s finances and protect all assets from the creditors until the trustee can be appointed to take over.

When you are made bankrupt, you have to undertake to cooperate fully with trustee and Receiver, hand over your bank and credit cards to the Receiver and conform to the non-payment rule, i.e. not pay off any debts to creditors. However, if any outstanding debts are not included in the bankruptcy order, such as student loans or court fines, these should still be paid.

As far as the creditors are concerned, they have to formally apply to your trustee for the money they say they are owed by you, and there must be no contact between you and your creditors regarding the payment of the debt. You cannot pay them directly and neither can they ask you directly for repayment. The trustee will manage all such payments by disposing of your assets, although should you have any spare income, this may also be used to pay off your debts over a period of three years, when it is known as the Income Payments Order.

During an initial interview with the Official Receiver you’ll need to provide full details of your financial situation, which will help them to protect your assets and make these available for payment to your creditors, and they’ll also decide at this point whether to appoint a trustee to manage the rest of the process. The bankruptcy process usually lasts 12 months.

Talk to Duncan Lewis and other debt solicitors for more detailed advice on bankruptcy.