BANKRUPTCY

What is Bankruptcy?

Bankruptcy is the administration of the affairs of the debtor by a trustee, for the interest of the creditors. When a person becomes bankrupt the control of all the debtor's assets, with certain exceptions, pass to a trustee whose job it is then to sell and distribute all assets to the creditors.

Any application for a bankruptcy order may be made by any of your creditors who are owed more than £750 or by the debtor themselves. Once the order has been made the debtor loses any right to his property apart from any equipment that may be needed for business use and basic domestic equipment, such as clothes, bedding and furniture and maybe certain pension rights.

There are, however, special rules regarding the bankrupt's home. Generally speaking if the bankrupt has equity in a house it may have to be sold. However, the law discourages the trustee from taking steps to force a sale through the courts during the first twelve months of bankruptcy, where the debtor is married or has young children.

The trustee has three years from the date of the bankruptcy order to sell the house or otherwise deal with the bankrupt's interest in it. If they do not deal with it within this time the property will revert to the bankrupt and, if the value of the equity is less than £1,000 the trustee will not be able to sell it at all.

If the bankrupt has surplus income above his/her needs, he/she may be required to make contributions for up to three years. The trustee may also claim, for as long as the bankrupt remains undischarged from his/her bankruptcy, any property acquired by the bankrupt, such as assets left to him/her in a will. Such acquisitions will be released for the creditors' benefit.

During the bankruptcy the bankrupt must not obtain credit of more than £500 from anyone, without telling that person that he/she is an undischarged bankrupt. He/she must not carry on business under a different name from the one under which he/she was declared bankrupt, without disclosing the fact that he/she is an undischarged bankrupt. He/she may not act as a company director without the Court's consent. His/her credit rating will be affected and some employers will not employ a bankrupt.

The bankrupt will usually be discharged from bankruptcy automatically after one year, or maybe sooner if the official receiver decides to close the file early. Once discharged, the bankrupt is released from his bankruptcy debts with some exceptions such as Court fines, and matrimonial debts. After he/she has been discharged, the bankrupt does not have any right to take back any property that was part of his estate in the bankruptcy and the trustee will remain in the office for as long as it takes to sell the property and distribute to the creditors.