A Guide to Bankruptcy in UK

Bankruptcy is the legal declaration about the inability of an individual or a company to repay its creditors. It is a legal way of handling the debts that you no longer can afford to pay. When an individual or company declares bankruptcy, the items of economical value or assets owned as on date are equally divided among the creditors and the bankrupt person or concern is freed of excessive loans. It thus enables to start afresh of course with a few constraints and restrictions.

Bankruptcy Policies in UK
In the United Kingdom, bankruptcy refers only to individuals and partnerships while companies follow different insolvent methods. There is no single law for bankruptcy in UK, but 3 separate laws with one for England and Wales, one for Northern Ireland and one for Scotland. In England and Wales, Bankruptcy refers only to individuals who are unable to pay their debts. The process and procedures are based on Part IX of the Insolvency Act 1986 and Insolvency Rules 1986 according to the last amendment. This way of expressing your payment inability or bankruptcy is termed as Sequestration in Scotland and the Accountant in Bankruptcy organization handles these issues.

Bankruptcy Declaration
An individual can be declared bankrupt only by a court order based on a petition elaborating the bankruptcy. The court analyses the bankruptcy petition based on the debt amount and repayment modes. The bankruptcy petition can be filed either by the individual itself or his creditors.

Creditor - Bankruptcy petition filing
The creditor can file a bankrupt petition by means of a two-step process. The creditor first sends a statutory demand to the debtor stating payment of sum within 21 days of demand service. Once a bankruptcy demand has been sent to the debtor, the debtor can choose to set it aside in the court and file for counterclaim against the petition. If the debtor does not pay the claim or shows no signs of setting aside the demand, the creditor can file a bankruptcy petition in court. The debt sum needs to be minimum £750 and must be a liquidated sum.

Bankruptcy Officials
The affair administration of the bankrupt will pass on to a bankruptcy trustee who is either the official receiver appointed by State secretary or an insolvency practitioner appointed by the creditors.
Official Receiver- He is appointed by the Secretary of State and is responsible for the bankruptcy proceedings and your assets. He takes the responsibilities to release the available amount equally among the creditors. He has to provide a detailed report of all events related to the bankruptcy or any relating criminal offence to the court and creditors. The official is also responsible for issuing a notice in the ‘London Gazette’ and also through any other local form of advertising that he deems appropriate as soon as bankruptcy is declared.
Insolvency Practitioner – An appointed trustee for your bankruptcy affairs need not be an official receiver always. It can sometimes be an insolvency practitioner appointed by the creditors with the responsibility of handling your assets and ensuring payments. They are experts who work in insolvency cases and are authorised by appropriate professional body like the BIS (Dept of Business Innovations and Skills).

Restrictions on a Bankrupt person
The bankrupt person need to follow certain mandatory restriction levied on him by the court. He has to furnish all details to his trustee and provide his complete coordination throughout the period of debt management. Apart from this the bankrupt person needs to follow a few constraints based on his bankruptcy.
He should also not be involved in any credit rising greater than £500 without informing the creditor about his bankruptcy
He cannot form another business whether directly or indirectly in another name or in the same without exposing his bankruptcy to all concerned individuals
A bankrupt person also cannot act as a director of any company

Discharge from Bankruptcy
Discharging from Bankruptcy is the process in which you are entitled free of all the debts you owed at the time of bankruptcy. The discharge process also releases you from all restrictions that had been imposed due to the bankruptcy order. According to the new provisions in April 2004, bankruptcy in England and Wales will last no longer than 12 months or less. Once the officer’s investigations are complete, the bankrupt is no longer liable for his previous debts.

Alternative to Bankruptcy
The debtor can alternatively choose to propose an IVA (Individual Voluntary Arrangement) or a DRO (Debt Relief Order) if the debts are within a limit. In case of an IVA, the debtor may enter into an agreement with the creditors regarding payment of complete or a limited amount of the debts over a time period by means of asset selling or some income. The proposal needs to be voted and accepted by a majority greater than 75%.

Help during Bankruptcy
There are also many resources and organizations that provide help and advice on bankruptcy issues. The Information Commissioner's Office provides information and help through their website. Also there are many individual bodies working on these lines to guide you through the process namely Consumer Direct (a government funded telephone and online help service), Business Link (a free business advice and support service) and ACAS (Advisory Conciliation and Arbitration Service).

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