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What is bankruptcy?

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If you have debt problems, one of the options for resolving them may be bankruptcy.

So what is bankruptcy and what does it involve?

Bankruptcy is a formal, personal insolvency process which is governed by the Insolvency Act 1986. Once a bankruptcy order has been granted, you obtain relief from your debts and your assets are realised by an Insolvency Practitioner and distributed to your creditors. You can either choose to declare yourself bankrupt, or be involuntarily declared bankrupt by a creditor to whom you owe money.

For a creditor to make you bankrupt, you must owe them more than £5,000. If they are satisfied that you appear unable to pay this debt, or have no reasonable prospect of being able to pay it, they may present a bankruptcy petition against you.

If you choose to make yourself bankrupt, you can do so online by applying for a bankruptcy order, for a fee, although this process is slightly different to that of a creditor presenting a bankruptcy petition against you.

The process of getting a bankruptcy petition

Prior to presenting a bankruptcy petition, your creditor must first personally serve you with a statutory demand. This is a formal demand, with prescribed content, for payment of the debt due to them. You then have eighteen days from the date the statutory demand was served to make an application to court to set aside the statutory demand if you do not agree that this debt is due. Such an application must be supported by a witness statement, setting out the grounds of your opposition. The matter will then be listed for a hearing.

If no application has been filed within twenty-one days of the date the statutory demand was initially served, your creditor may then present a petition at court and a bankruptcy petition hearing will be listed.  

What happens after a bankruptcy order is granted?

If a bankruptcy order is granted at the hearing of the petition, the Official Receiver is appointed as your Trustee in Bankruptcy, unless the court grants that a specified, licensed Insolvency Practitioner be appointed in their place. The Trustee in Bankruptcy is appointed to realise your assets and distribute them among your creditors. As at that date, all of your assets automatically vest in the Trustee in Bankruptcy – this includes all the cash in your bank account(s) and any interest you have in property.

As a bankrupt, you are under a duty to comply with the requests of your Trustee in Bankruptcy.  They have statutory powers to investigate your affairs and the ability to apply to court to summon you, or any other person able to give information about your dealings, affairs or property, if either you or they do not comply with the Trustee in Bankruptcy’s request for information.

Being made bankrupt

If you are made bankrupt, there are a number of restrictions which you must abide by, such as no longer being able to act as a director of a company. It is also an offence to conceal any property within your estate from your Trustee in Bankruptcy.

Your Trustee in Bankruptcy is to act in the best interests of your creditors, as a whole, and protect your property in the interests of the bankruptcy estate. This may include challenging any antecedent/reviewable transactions you entered into before you were made bankrupt. These can include,  for example, transactions at an undervalue - where you may have disposed of an asset as a gift; or for significantly less than it was worth before you were made bankrupt. It could also include preference payments, which can be any preference given by you to a creditor in the six months before the presentation of the bankruptcy petition or, if the preference was to a ‘connected’ party, within the two years before you were made bankrupt. Your Trustee in Bankruptcy can apply to the court to recover these payments from those third parties.

You are automatically discharged from bankruptcy on the first anniversary of the day the order was made, unless your Trustee in Bankruptcy has made an application to suspend this automatic discharge.

If any of the matters mentioned above impact you and you require advice, please do not hesitate to contact the Corporate Recovery Team.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.