What is Bankruptcy?
What is a Bankruptcy?
Bankruptcy is a legal term used for an individual or business who cannot afford to pay there debts back to their creditors. Creditors may file a bankruptcy petition against a debtor in an attempt to regain all or part of what they are owed.
If a debtor is declared bankrupt with debts, its will mean they will have to hand over their assets to their Trustee. This can include you savings, personal possessions like your car or form of transport and even your home. The Trustee, this can be a Bankruptcy accountant or a licensed Insolvency Practioner, will then value your estate and possessions and look to sell them at auction to recover the debts.
The consequences of Bankruptcy are severe and no one should apply for it without seeking advice from a professional debt advisor.
Bankruptcy has a bad stigma attached to it and most people will try and avoid it at all costs. Please note, bankruptcy should only be a last resort. If you feel you may have to apply for bankruptcy, look for alternatives immediately such as an IVA (Individual Voluntary Arrangement) or Debt Management Plan. A professional debt advisor can help you do this.
How does it work?
An individual can be made bankrupt either in one of three ways:
- Voluntarily – By application yourself
- Involuntarily - By the creditor owed money (£750 Minimum).
- By your Trustee - or anyone bound by an IVA
A Bankruptcy Order will be made against you by the courts. This will be done voluntarily by your own request or from a creditor to who you owe £750 or more. Some people will be charged a fee by the court and a deposit to cover the administration of your Bankruptcy. If you are married, both you and your partner will have to pay the fees.
You will have to fill out a form supplied by the courts explaining your reasons for Bankruptcy. You will also have to complete a financial statement which includes you income, expenditure and to who you owe the debts to. Your application will then be heard by the court. Once you have officially been declared bankrupt, your creditors and the people you owe money to can no longer chase you for the debt.
You will be entitled to keep some essential items for everyday living but you may be asked to pay a percentage of your income. It will then be up to the Trustee to sell the debtors assets and/or property and use the money to repay the creditors and fund any administration costs.
Refusal to go Bankrupt
A Bankruptcy Order can still be made against you if you refuse to agree to proceedings. It is important to cooperate fully with your Trustee and the courts once the petition has been filed. If you fall into a dispute you should try and resolve it as soon as possible, preferably before the proceeding have begun to avoid disruption. Trying to resolve issues after the order has been granted is both difficult, stressful and expensive.
Bankruptcy should always be considered as a last resort as there are alternative solutions available which may be more suitable to your circumstances. An IVA is a popular alternative if you owe over £15,000 or a Debt Management Plan maybe more suitable if you would prefer to look for a less formal arrangement. Always consult a professional Debt Advisor before considering Bankruptcy.
If you would like more information on apply for Bankruptcy give The UK Debt Advisor a call on 0800 043 2027 or use our free call back form.