Understanding Bankruptcy

Bankruptcy is a common known solution towards debt settlement problems. But what is it? Is it really beneficial? How do you apply for bankruptcy? The answer to all these questions needs to be understood before you decide to file bankruptcy. It is hence mandatory to understand the concepts and theories involved in the process to get the maximum out of it.

Bankruptcy – What is it?
It is theoretically defined as the inability of an individual to pay or clear off his debts during the term of the debt or after its due date. Thus a debtor can decide to declare bankruptcy due to increasing debts that he is unable to pay. The assets of an individual who declares bankruptcy is sold to raise enough money to clear off the debts. The debts that the debtor is unable to pay even after liquidation are written off so as to provide him with an opportunity to start fresh. The duration of your bankruptcy term lasts for about 12 months at the end of which the unresolved debts are cleared.

Bankruptcy Application process
Bankruptcy can be filed in your nearby county court with the necessary documentation and details about your debts and assets. A fee of £600 is also to be paid in the court for filing bankruptcy though this fee can be discounted to £450 based on state benefits eligibility. Once the documents are submitted and the fees paid, the court takes the document for verification after which the judge issues a bankruptcy order. An official receiver is assigned to preside over the case and to verify your debts and assets. It is not always necessary to become bankrupt by self filing as a person can also become bankrupt when any one of his creditor file a bankruptcy petition against him.

Bankruptcy Responsibilities and Restrictions
There are many responsibilities and restrictions that are to be followed during the bankruptcy term. The first and most important restriction is the non-payment rule. The rule emphasises that the bankrupt individual should not be directly involved in any payments to the creditors without the knowledge of the trustee or official receiver. Bankruptcy also involves a restriction that the bankrupt individual should not be directly or indirectly involved in a company without informing the board of directors about his financial bankruptcy status. It is also necessary to inform your creditor about your bankruptcy in case you are seeking a loan greater than £500 from him during your bankruptcy term. Additional restrictions may be levied based on your employee work contract specific to bankruptcy conditions. Bankruptcy not just creates added restrictions but also responsibilities so as to ensure that the process is sorted out without any hiccups. It is extremely necessary that the bankrupt individual provides complete co-operation to the official receiver and disclose all information about debts and assets. Such kind of co-operative action will ensure early discharge and easy debt clearance. The bankrupt will also have to submit all your credit cards and plan about liquidation of his assets towards debt repayment. It is also required that the bankrupt continue to pay the debts that has not been included under bankruptcy.

Bankruptcy Term
The term of bankruptcy is normally about 12 months. This period can either be decreased or increased based on the opinion of the official receiver. The official receiver can recommend to the court for reducing to the term to anything between 6 to 12 months depending repayment of the debts and acceptance from the creditors for term reduction. Alternatively he can also choose to increase the term if he finds out discrepancy in the details or any criminal charges related to the debts. Lack of co-operation from the bankrupt to the official receiver can also pose problems of tenure increase. Bankruptcy Restriction Undertaking or Bankruptcy Restrictions Order can be issued by the official receiver or the court respectively for extending the restriction related for a longer term.

Debt repayment in Bankruptcy
Once bankruptcy has been declared, the court appoints an official receiver who proceeds into the case and scrutinises the debt and the assets list. The assets of the bankrupt along with any other financial interest are liquidated or sold so as to repay the debts. The official receiver can also suggest selling the bankrupt’s vehicle and getting a smaller one whose value does not exceed £2500. The rest of the money is used for the purpose of debt repayment t the creditors.

Though this is just the tip of the iceberg when you deal with bankruptcy procedures, the information is a collection of essentials about bankruptcy.

Post a comment