Fighting Debt - a user guide

11) BANKRUPTCY

b) The Bankruptcy Procedure

The Bankruptcy petition

Every bankruptcy starts with a Bankruptcy Petition. This can be presented either by a creditor or the debtor. For a creditor’s petition, there has to be a minimum amount of £750 owed by the debtor and must be an Unsecured debt. The creditor will have to supply evidence to the court proving that you’re not able to pay, ie failure to comply with a statutory demand or a court's order (CCJ)

If you wish to apply for bankruptcy, contact your local county court.. Staff will tell you where to send your bankruptcy petition. There is a fee to towards the cost of the administration of your bankruptcy by the official receiver.

Court hearing

A court hearing will take place to decide whether or not a bankruptcy petition can be granted and made into a bankruptcy order. If a bankruptcy order has been made by the court, an Official Receiver will be appointed. Once the bankruptcy order has been made it will be published, and will also be advertised in a local or national newspaper. The official receiver will give written notice of the order to a number of organisations, such as the local authorities, utility suppliers and courts.

Submission of statement of affairs

The debtor must submit a 'Statement of Affairs' to the Official Receiver within 21 days of the making of a bankruptcy order. This outlines all assets, income and expenditure. Based on the statement of affairs, the Official Receiver will decide whether it is necessary to call a meeting of creditors to enable them to appoint an Insolvency Practitioner of the creditors’ choice as the trustee in bankruptcy. Many bankruptcies come with an 'Income Payment Order' which means you must pay the Official Receiver the majority of your disposable income for a period of three years.

Creditors’ meeting

A creditors’ meeting will be held at the discretion of the Official Receiver, or at request of creditors who must make up at least 25% in value of the bankrupt’s creditors. A trustee in bankruptcy can be appointed at the creditors’ meeting. The Official Receiver is assigned control of all property, leaving basic essentials for general living and trade. Valuable items considered an essential may have to be sold and replaced with something more practical. The Official Receiver may arrange for any property and vehicles to be sold, using the money generated to pay creditors some or all of what is owed. Interest on life insurance policies can also be claimed by trustees. If you come into any money while the bankruptcy order is still in place, this could also be taken away (eg: inheritance, lottery).

Secured creditors do not depend on the trustee in bankruptcy for repayment of debts due to them. They can realise the asset over which they have security interest, and keep the sales proceeds in discharge or reduction of the debts owed to them. For example if there is a mortgage on a property, the creditor is repaid what they’re due, and if there is any remaining equity in the property this is paid to the trustee in bankruptcy for distribution among other creditors. If the sale does not produce funds sufficient to cover the debt, the creditor can claim the balance as an unsecured creditor.

Restrictions

There are restrictions and obligations to abide by as a bankrupt which are:

1) You must not try to get credit for more than £250 without disclosing that you are a bankrupt. This

includes trying to get credit jointly with someone else and also applies to goods or services you

order with potential of failure to pay on delivery.

2) You must not continue with a business in a different name from the one in which you were made

bankrupt without telling all those involved the name in which you were made bankrupt.

3) You should not form or manage a limited company or act as a director without the court's permission.

4) You cannot hold certain public offices, such as MP, school governor, the trustee of a charity or pension fund.

5) You can open a new bank or building society account but you are obliged to tell them you are bankrupt and

they will probably impose conditions and limitations on your account.

6) You cannot have an overdraft without informing the bank that you are bankrupt or write cheques which are

likely to be dishonoured.

7) You are obliged to tell your trustee about any money you have in the account that is more than you need for

basic living expenses. Your trustee will take any surplus to pay your creditors.

Discharge of the bankrupt

A first-time bankrupt can usually be discharged one year after a bankruptcy order is made. After a period of 12 months, you will be formally discharged from the bankruptcy order and most of the restrictions placed with it will be lifted. You will be free from the majority of outstanding debts, however there may be debts which can’t be included in bankruptcy which will need to be paid back. Check which debts could be included in this.. Any other previous creditors will not be able to pursue for any of the debt as it will be completely written off. Any assets acquired after the bankruptcy has been discharged, remain with the discharged bankrupt.

Cost of bankruptcy

Any expenses incurred as a result of bankruptcy is borne by the debtor. This includes costs such as court, the professional charges of the trustee and any nsolvency fees.