What is Bankruptcy?
Bankruptcy is an option available to you when you are unable to pay off your debts. This is not something you want to enter into lightly. When you declare bankruptcy, it becomes public knowledge, and it may cause some difficulty for you. There is a less public alternative to bankruptcy, an IVA (Individual Voluntary Arrangement), in which your financial problems will be kept out of public knowledge.
Procedure of Bankruptcy
If your creditor can prove that you are incapable of paying your debt and that you have no prospect of being able to pay it off, they can start the proceedings to have you declared bankrupt. Your creditor will file a petition in court, and if the court deems it necessary, an order will be issued declaring you bankrupt. The court will appoint an official receiver. This person will inform the court if you are making any income that surpasses the absolute minimum level that it takes to sustain your family?s essential living costs. The official receiver can also claim your property and any other assets that you have in order to pay off the amount declared by the court. After a minimum period of one year, you will no longer be liable for the debt incorporated with your bankruptcy.
Pros and Cons of Bankruptcy
- Bankruptcy relieves a lot of stress and uncertainty that is part of not being able to pay your debts.
- Your debt will be written off.
- Bankruptcy proceedings will make you free of your insurmountable debts allowing you to make a fresh and clean start, free of debt and stress.
- You will lose anything of value that you have. This may include your house and/or your vehicle.
- Your creditors will be forced to accept less money than is owed to them.
- Any equity you have in your home will be lost.
- If you are a business or company director, you will lose your administrative and decision making power, and it will be taken over by a third party.
- If you are renting your property, you will most likely be forced out, and it will be very difficult to find a place that will let you rent from them.
- Unless given permission by the court, you cannot take any part in the promotion, formation, or management of a limited partnership company.
- You may not act as a Justice of the Peace or a school governor, and you may not become a Member of Parliament or any other local authority.
- Your credit will be affected for many years, even after the cancellation of your debt.
- Your financial matters will be openly examined in court, so it will be difficult for you to open a current account at any bank.
- Your financial records will be scrutinised in court, and if any irregularities are found, you will face criminal charges.
- Bankruptcy comes with a certain stigma, and it may damage your reputation and standing within your community.
How do you become bankrupt?
You can become bankrupt in any one of the following ways:
- Debtor's petition: This is voluntary, so you declare bankruptcy by your own choice.
- Creditor's petition: This is involuntary. Any creditor this is owed at least £750 is able to file a report against you.
- Anyone bound you through an IVA may file a report against you.
Duties of a Bankrupt Person
After the bankruptcy order has been filed through the court, you will need to provide the official receiver with all information relating to your financial affairs. This information includes a list of your assets (property, pensions, insurance policies, etc.), the amounts of debt owed to each of your creditors, and a detailed list of who your creditors are. All of this information must be turned over to the official receiver within 21 days of the court order being filed. All assets are then turned over to the official receiver along with all bank statements and insurance policies related to your property and financial affairs. Any assets that you acquire and any income increases obtained during bankruptcy must be declared to the trustee. You may not make any payments directly to your creditors.
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