Debt Collection and Recovery
A guide to bankruptcy
Bankruptcy is one way of dealing with debts you are unable to pay.
Free you from overwhelming debts so you can wipe the slate clean, (subject to restrictions)
Make sure any available assets are shared out fairly among your creditors
Anyone can go bankrupt, including individual members of a partnership. There are different insolvency procedures for dealing with companies – placing themselves into liquidation, receivership or administration (and for partnerships themselves).
How long will I be bankrupt?
The Enterprise Act 2002 (EA2002) introduces a new section 279 to the Insolvency Act 1986 which states that a bankrupt will generally be discharged one year from the making of the bankruptcy order where that order is made on or after 1 April 2004. It should be noted that this will apply even to those cases where the bankruptcy order is a second or subsequent bankruptcy.
This period may be shorter if the Official Receiver concludes his enquiries into your affairs and files a notice in court. You will also become free from bankruptcy immediately if the court annuls the bankruptcy order. This would normally only happen when your debts and the fees and expenses of the bankruptcy proceedings have been paid in full or the bankruptcy order should not have been made.
- Yourself (debtor’s petition); or
- By a creditor who are owed at least £750 by you and that amount is unsecured (creditor’s petition).
A court makes a bankruptcy order only after the presentation of a petition by either usually:
A bankruptcy order can still be made even if you refuse to acknowledge the proceedings or fail to engage in the process. You should therefore co-operate fully once the bankruptcy proceedings have begun. If you dispute the creditor’s claim, you should try and reach a settlement before the bankruptcy petition is heard. Trying to do so after the bankruptcy order has been made will be difficult and expensive.
Bankruptcy petitions are usually presented at the High Court in London or at a County Court having bankruptcy powers near to where you trade or live. If you now normally live or work in another EU country it is unlikely that you would be made bankrupt in this country – as any petition would be issued where you are said to have a “main centre” of interest.
Once the bankruptcy order has been made the Official Receiver will give notice of the order in the "London Gazette", which is an official publication that contains legal notices. In addition, the official receiver may advertise the order in any other way – such as your local paper etc.
Ordinarily an Official Receiver is appointed by the Secretary of State and is an officer of the court. He has responsibility for administering your bankruptcy and protecting your assets from the date of the order. He or she will also act as trustee of your bankruptcy estate unless an insolvency practitioner is appointed.
The Official Receiver is also responsible for looking into your financial affairs for the period before and during your bankruptcy and has to report to your creditors and possibly the court. This is especially so if he discovers report any matters which indicate that you may have committed criminal offences in connection with your bankruptcy, or that your behaviour has been dishonest, or you have been in some way to blame for your bankruptcy.
A bankrupt’s duties
- Comply with the OR’s request to provide information about your financial affairs. He may request that you attend at his office for an interview. If the Official Receiver does not ask that you attend at the office for an interview, you will be sent a letter which will set out what is required of you. It is likely that you will be asked to complete a questionnaire.
- Give the OR a list of your assets and details of what sums are owed to your creditors.
- Retain or when requested hand over your assets to the OR together with all your papers relating to your property and financial affairs.
- Notify your trustee about assets and increases in income you may obtain during your bankruptcy. (Note: by law you must inform your trustee of any property which becomes yours during the bankruptcy. Such property includes lump sum cash payments that you may receive, for example redundancy payments, property or money left in a will).
- Stop using your bank, building society and credit card accounts straightaway.
- Not obtain credit of £500 or more from any person without first disclosing that you are bankrupt.
- Not make any payments direct to your creditors as this would constitute a “preference”.
- Finally you may have to go to court and explain why you are in debt. If you do not co-operate, you could be arrested for contempt of court.
When a bankruptcy order has been made, you must:
The OR will notify your creditors that you are bankrupt and may either act as the
trustee or may arrange a meeting of creditors for them to choose an insolvency practitioner to be the trustee. This happens if you appear to have significant assets. The trustee will tell the creditors how much money (if any) will be shared out in the bankruptcy and allow creditors to make their formal claims.
The costs of the bankruptcy proceedings are paid first from any money that is available – including fees that the OR or any insolvency practitioner may charge for administering your case.
Some claims from your employees (if any) may be preferential and are paid next, along with any other preferential debts. Finally, other creditors are paid, together with interest on all debts, if there are funds available from the sale of your assets. If there is a surplus, it will be returned to you. You would then be able to apply to the court to have your bankruptcy "annulled".
If you have an interest in a property the property may have to be sold to go towards payment of your creditors’ claims.
Until your interest in the home is sold, that interest will continue to belong to the trustee (usually three years), and will include any increase in its value. Therefore, the benefit of any increase in value will go to the trustee to pay your debts, even if the home is sold some time after you have been discharged from bankruptcy!
If, after the usual three years, your trustee has not sold or obtained a charge over your interest in the property, or applied for an order of possession or obtained a charging order against the property, or you have not come to any arrangement with your trustee about that interest, it may be returned to you.
Will bankruptcy affect my pension or life assurance pPolicies?
The rules have now changed. A trustee cannot usually claim a pension as an asset if your bankruptcy petition was presented on or after 29 May 2000, as long as the pension scheme has been approved by HMRC
Normally your trustee will be able to claim any interest that you have in a life assurance policy and be entitled to sell or surrender the policy and collect any proceeds on behalf of creditors. If the life assurance policy is held in joint names, that other person is likely to have an interest in the policy and should contact the trustee immediately to discuss how their interest in the policy should be dealt with.
What restrictions would apply to the bankrupt?
- Obtaining credit of £500 or more either alone or jointly with any another person without disclosing your bankruptcy.
- Ordering goods without asking for credit and then failing to pay for them when they are delivered).
- Carrying on business in a different name from that in which you were made bankrupt, without telling customers/suppliers the name in which you were made bankrupt.
- Being concerned in a "managerial" capacity (directly or indirectly) in a limited company, or acting as a company director, without the court’s permission, even if not formally appointed as a director.
- You may open a new bank or building society account but you should advise them you are bankrupt; so that they may impose conditions and limitations.
- Not to obtain overdraft facilities without telling the bank that you are bankrupt, or write cheques which are likely to be dishonoured.
- You should tell your trustee about any money that you have in the account which constitutes more than reasonable living expenses, as the trustee can claim the surplus amounts to pay your creditors.
The following are criminal offences for an un-discharged bankrupt: