Bankruptcy – An Overview
Author: Michael Challiner
If you have serious debt problems you may be considering bankruptcy. It is important to understand what bankruptcy is and whether it is the right option for you.
What is bankruptcy? Bankruptcy is a temporary legal status. When bankrupt, your non-essential assets such as property and possessions including excess income are used to pay off your creditors. At the end of the bankruptcy period, most debts are discharged. This can be an effective way of clearing debts you can’t pay.
How long does bankruptcy last? Bankruptcy normally lasts for one year. After this time, you’ll be “discharged” from your bankruptcy regardless of how much you still owe. Your discharge could happen earlier if you co-operate fully with the Official Receiver. However, in a small number of cases and if you’ve behave irresponsibly, bankruptcy can last for much more than one year.
How do you become bankrupt? A court declares you bankrupt by issuing a “bankruptcy order” after it’s been presented with a “bankruptcy petition”. Commonly this happens in one of two ways.
Filing your own bankruptcy petition. – A debtor’s petition form can be downloaded from the Insolvency Service website or obtained from county courts with bankruptcy jurisdiction. The completed form should then be taken to the county court nearest to you that has bankruptcy jurisdiction. A fee of 150 pounds and deposit of 360 pounds is payable at this time. This amount cannot be waived.
A creditor making you bankrupt. – Your creditors can present a creditor’s petition if you owe them an unsecured debt over 750 pounds. Once bankruptcy proceedings have started, you must co-operate fully even if it’s a creditor’s petition and you dispute their claim.
Where is a bankruptcy order made? Bankruptcy petitions are usually presented in a county applicable court near where you live or trade. Who deals with your bankruptcy? Once a bankruptcy order has been made against you, your creditors can no longer pursue you for payment. Payment becomes the responsibility of the trustee. An Official Receiver is appointed if you have no assets. If you do have assets, an Insolvency Practitioner will be appointed to act as trustee and sell your assets to pay your creditors.
How bankruptcy affects you. Once you’re bankrupt, the Official Receiver, or appointed trustee, can sell your assets to pay your creditors. However, certain goods aren’t treated as assets for this purpose, for example: required work equipment and needed household items such as clothing, bedding and furniture.
The Official Receiver can look at your income taking into account expenses and decide if payments should be made to your creditors. You may be asked to sign an “income payments agreement” to pay fixed monthly instalments from your income for three years.
Your obligations when you’re bankrupt. You must: Give the Official Receiver details of your finances, assets and creditors, look after your assets and hand them over to the Official Receiver with the relevant paperwork, such as bank statements and insurance policies, tell your trustee about any new assets or income during your bankruptcy stop using credit cards and bank or building society accounts not obtain credit over 500 pounds without telling the creditor that you’re bankrupt not make payments direct to your creditors. You may also have to go to court and explain why you’re in debt. If you’re thinking about declaring yourself bankrupt or you’re being threatened with bankruptcy, it’s important to seek independent advice.
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