Bankruptcy – A Guide

With the current increasing financial crisis, bankruptcy has become a commonly sought solution towards dealing with debt problems. It is required to completely understand the positives and negatives associated with bankruptcy before you opt for this option as it not only creates a social stigma but also strains your assets and financial interests for a considerably long term.

Bankruptcy - Definition
Bankruptcy is defined as one’s inability to pay off his debts even after they have crossed their due date. Once you declare bankruptcy, your assets are sold or liquidated to repay your creditors. The term of bankruptcy lasts for about 12 months and you will be written off any loans that are not paid by end of the 12 months.

How to apply for Bankruptcy
Application for bankruptcy can be done in your nearby county court where you have to submit required documentation with complete details of your bankruptcy and assets. You will also be asked to pay a court fee of £600 with is further discounted to £450 in case you are eligible for any state benefits. Once you submit all your documents, the judge would issue a bankruptcy order and will also assign an Official Receiver to preside over your case of bankruptcy. You can also be declared bankrupt if any one of your creditors will file a bankruptcy petition against you in the court.

What happens after being declared bankrupt?
Once you are declared bankrupt, the court appoints an official receiver who will also act as a trustee for managing your debts in cases where you have insignificant assets. You will be required to go through an interview session with the Official Receiver where he will assess the reasons for your bankruptcy and will also collect details about your assets and debts. The official receiver will also publish your bankruptcy details in the ‘London Gazette’ which is a legal publication and also in the Individual Insolvency Registry. He also notifies your bank, landlord and building society about your bankruptcy. The status of your bankruptcy also reflects in your credit rating and affects it to deep levels that further hamper your borrowing capacity.

What are the responsibilities and restrictions imposed during bankruptcy?
There are also restrictions that are associated with your bankruptcy, the foremost being the non-payment rule. The rule states that you will not make payment to your creditors directly without the notice of your trustee or official receiver. You will also be responsible for providing complete co-operation with the official receiver and also to hand over all your credit cards to him. You will also be entitled to continue payment for debts that are not included in your bankruptcy. The bankruptcy declaration might also make you responsible for closing any business as you cannot create or market any business and also will not be liable for any credit greater than £500 without disclosing your bankruptcy. Your employer will also have to be informed in case you have bankruptcy restrictions associated with your work contract.

How are the debts repaid in bankruptcy?
Also your assets and any financial interests held as on date of bankruptcy or bought during your period of bankruptcy will be claimed by the trustee to clear off your bankruptcy debts. The bank account and building society accounts will be frozen and all the cash will be taken towards debt repayment. Some banks might also not be willing to continue with your account once declared bankrupt. The trustee will however provide an option for your partner r friend in case of a joint ownership to purchase your interest. The court can also order your vehicle to be sold if its value is greater than £2500. The trustee can also claim your pension funds and insurance policies and any benefits or lump sum that you receive through these during the term of bankruptcy.

How long does bankruptcy exist?
The bankruptcy is normally for a period of 12 months from the date of declaration which can be reduced or increased based on the official receiver’s discretion. In case he has completed your affairs and your creditors have accepted for reducing the term, he will recommend to the court for reducing the term up to about 6-12 months. He can also extend the term in case of any criminal charges or dishonest behaviour determined as reason for your bankruptcy. He can recommend to the court to delay your term and also pose restrictions if you fail to co-operate with him during your bankruptcy tenure. If you agree for his recommendation of extension for restrictions imposed, it is done mutually and is known as the Bankruptcy Restrictions Undertaking. In cases where you do not agree, the case can be dealt in court and is known as the Bankruptcy Restrictions Order where the court can decide to accept or reject the official receiver’s recommendation.

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