Bankruptcy

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There are two different ways that a person can enter into a Bankruptcy.  Either by a "Creditors Petition" or a "Debtors Petition".  Once the Bankruptcy Order has been made, however, the procedure from then on is the same.

The period in which a person is adjudged bankrupt, is now only one year (please note, however, that this can be extended to a maximum of 15 years, should the individual attempt to hide assets or not co-operate with the Official Receiver/Trustee).

The main restrictions/implications of a bankruptcy are as follows:

1)  You cannot take credit exceeding £500, without first advising that person that you are bankrupt.

2)  An inheritance or windfalls that you may receive (or become entitled to) during that one year period, would fall into the bankruptcy estate.

3)  All bank accounts in your name are frozen on the making of a Bankruptcy Order.  This does not mean, however, that you cannot have a bank account whilst you are bankrupt, but such an account would have to be opened after the Bankruptcy Order had been made.

An individual known as the "Official Receiver" who works at the Insolvency Service, would initially be appointed to deal with the Bankrupts affairs.  His main duties would be to realise all of the bankrupts assets.  

As regards the bankrupts home, the Official Receiver (or any later appointed private Insolvency Practitioner, known as the "Trustee") only has a period of 3 years from the making of the Bankruptcy Order in which to realise the bankrupts share of the equity.   The Official Receiver/Trustee would normally allow the Bankrupt with a set period of time in the first instance to voluntarily come up the money (ie, from a co-owner, third party, etc).  Should that money not be forthcoming during that set time period, the Official Receiver/Trustee would have it in his power to apply to Court for an Order for Repossession and sale of the property. 

As regards income, the Official Receiver/Trustee would wish to establish whether the Bankrupt had an excess monthly income.  Should he establish that this is such excess income, he would require this from the Bankrupt each year for a period of three years.   This is known as an "Income Payments Order".  For an Income Payments Order to last three years, however, the Official Receiver/Trustee, would need to obtain the Order whilst the individual is still bankrupt (ie, in the one year period).  Should the Official Receiver/Trustee not have obtained an Income Payments Order by the time of the Bankrupts Discharge (which is automatic on the anniversary of the making of the Bankruptcy Order), then he can no longer obtain such an Order.

Please note that whilst Purnells can provide to you information as regards a bankruptcy, we are unable to provide specific advice as to whether a bankruptcy would be your best option (in accordance with the FCA regulations).

Some examples of the main concerns within a bankruptcy can be found by clicking below: