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What is Bankruptcy? Know About Bankrupt And Bankruptcy

Bankrupt or bankruptcy is a legal process in which people come across a certain situation where they cannot pay off their debts to their creditors. In most cases, bankruptcy is issued by the court and it is initiated by the debtor. 

Here, we will provide you all the necessary details of bankruptcy. You just need to go through them in order to avoid getting bankrupt in the future.  

What is Bankruptcy?

Bankruptcy is the process of engaging the person or an entire business legally if they have failed to repay loans. So, a petition is sent to the debtor and he or she must fill it up. Thereafter, all the items that are assets of the debtors are examined and evaluated. 

If necessary, the creditors might ask the debtors to use those assets and repay the debts. 

How Bankruptcy Affects Customers?

The bankruptcy offers the debtors or any other business to start their business once again from scratch. It also provides the creditors with a chance to gain access to the customer’s credits with a proper measure of debt repayments. 

After completing all the necessary bankruptcy procedures, you will be free from any kind of debt obligation regarding bankruptcy. 

How to Deal if you Become Bankrupt?

If the high court issues the bankruptcy order against you, then you will become bankrupt. After that, you will receive a bankruptcy petition in which you will be able to see the following points that are given below. 

  • List of creditors
  • Your details as a debtor
  • Details of the supervisor, the bounded person, and the particular voluntary agreement papers

Now you need to fill up the petition very carefully. To know more about the information about filling the petition, have a look below. 

Fill up the Bankruptcy Petition 

When you understand that there is no other choice left behind, you need to fill up the necessary forms. There are two forms you need to fill up very carefully. You can get these forms from the Bankruptcy and Chancery Division of High Court in Belfast or from Insolvency services. 

Follow the Statement of Affairs

The statement of affairs is the form that has all the information about listing your assets and numbering debts. You have to note this down carefully including the details of your creditors along with their payable amount. 

After filling this form, you must make a statement before the court to the solicitor that you have filled it completely and correctly. It will be helpful for you if you declare and reveal all your assets and debts truthfully. 

Payment of Fees

There are three types of fees that you must pay while you receive your petition along with the statement of affairs from the court. 

  • You need to deposit £525 to the administrator when the bankruptcy occurs. You can also pay this amount electronically, in liquid money, postal order or by cheque from a bank.  
  • Pay the court fee of £144 with the same payment media that is given above. You have to pay this amount to the Northern Ireland Courts and Tribunals Service. It also happens that the court might not charge this amount from you or it might decrease the amount for the time being.
  • If a fee is pending to the counselor, to which you are affirming the items of the statement of affairs, you need to pay £7. You can consider it as a service cost. 

Other Alternate Options to Avoid Bankruptcy

Bankruptcy is a very serious matter. Due to bankruptcy, you can lose your money, power, as well as your home. But you might avoid becoming bankrupt even if you are in debt by trying these arrangements with your creditors that are given below. 

  • Settle down to informal agreements by asking a repayment time table from your creditor. 
  • Try to practice individual voluntary agreements (IVAs) that will help you to negotiate the terms and conditions of repayments. 
  • Take help from Enforcements of Judgements Office (EJO). They will help you to make payments under certain conditions. After that, EJO will pay the amount to your creditors. 
  • If you cannot pay or borrow more than £20,000, then you can pay the amount under certain instructions in debt relief orders. 

If you own enough assets to pay the amount, you cannot avail of the service of Debt Relief Orders (DRO). You can make use of these assets only to improve your financial condition. 

Bankruptcy in the United Kingdom (England and Wales)

In England and Wales, the bankruptcy is generally regulated by a certain Insolvency Act 1986. Along with that, it is also amended by the Insolvency Rules 1986. It is only applicable to a specific person but, not any commercial organizations or entities. 

You might get bankrupted if and only if the court gives order by referring a bankruptcy petition. Besides, you can also have your own petition if you are unable to repay your debts. Your creditors might also sign their petition for issuing a bankruptcy order from the court against you. 

Bankruptcy in the United Kingdom (Scotland)

In Scotland, bankruptcy is coined by the term “sequestration”. The management that is solely responsible for monitoring this process is the accountant in bankruptcy. So, there are various types of alternate options that are easily available to you if you are dealing with your debt problems. 

However, the Debt Arrangement Scheme can help to deal with bankruptcy and other debt problems. These are the agreements that take place between you and your creditors. 

In addition to that, various other institutions are also present there. They are always ready to give you valuable and professional advice when you are facing debt problems.

How does Bankruptcy Affect you?

Bankruptcy will pose a deep impact not only on your financial and economic conditions but, also hamper the peace in your daily life. In addition to that, it will also shake the root of your assets, earnings, commitments, and other financial ventures. The details are given below. 

Capital Belongings (Assets)

If you become bankrupt, then the creditor will sell your assets and fulfill their necessary needs. There are some items that they will not regard as assets. This includes equipment with which you work (like tools or automobiles), household items (like furniture), utensils, groceries, and other items that you are using regularly. 

Your residence is an asset and you might have to seal it in order to repay your debts. This depends upon whoever owns the house and its valuation. So, the creditors will check whether your property is worth selling or keeping in the mortgage. This is generally known as equity.

Incomes

The creditor will obviously look at your monthly earnings. They will also take into consideration your expenses related to mortgages, rents, and house bills. After that, you have to decide whether to pay the creditors.

The creditors also might ask you to sign on the “income payments agreements” so you can pay the debt. However, you can do it in some fixed monthly installments for a certain duration of time. 

If you don’t sign the agreement, the creditor can easily apply for an income payment order from the court. After that, the court will order you to make the payment that can last up to 3 years from the issue date. 

Somehow, if your situations or conditions change, you have to inform your creditor for reviewing these arrangements. Moreover, you also have to meet certain commitments that are in the process like new rents, debts, and others, after you become bankrupt.  

Some Other Applicable Processes 

When you are in bankruptcy, your creditors can compose some other applications to the court following the order of bankruptcy. The applications include the following. 

  • Popular public exams
  • Suspension of automatic discharge applications
  • Applications that will give permission to act as a director
  • Independent applications (private)

After learning all these, a question might come into your mind that what you need to do when you are bankrupt. 

What to do when you are Bankrupt?

When you are bankrupt, you must do certain things that are given below. 

  • Provide all the necessary information about your assets and finances to the official receiver. 
  • Take good care after assets and handover them to the receiver with proper paperwork. The paperwork must include statements from banks, insurance policies and other important items. 
  • You need to inform your trustee about crucial data like your newly bought assets or income during the time duration of the bankruptcy. 
  • Restrict the usage of all the credit cards and other social accounts. In addition to that, you must not get the credit more than £500 without informing the creditor that you are bankrupt. 
  • You must not make any type of payments directly to your creditors or without any receipt. But somehow, there are some exceptional cases related to mortgage arrears, child maintenance dues, and many more. 

Moreover, you can open an initial bank account when you are bankrupt. After the bankruptcy is over, you might face many difficulties while getting credit. Regarding this matter, the receiver will not send any type of notice to you from the reference agencies. 

What is the Time Duration of Bankruptcy?

When you are in bankruptcy, it generally lasts for 12 months. After the bankruptcy is over, you are free from all kinds of debts. You can get rid of it earlier if you assist the official receiver with full co-operation. 

If you somehow don’t co-operate or fool around the receiver, then the bankruptcy can last more that one year. 

From where you can get Assistance and Advice regarding Bankruptcy?

When you are in bankruptcy and facing critical situations, you can contact and get independent advice from Step Change Debt Charity, Advice NI, and many other organizations. These are the platforms in the UK that will help you with all the matters that can be helpful for you to get rid of bankruptcy. 

Disclaimer: This website nationaldebtlines.co.uk is in no way related to Step Change Debt Charity or approved by the Government. However, the product (IVA) which we specialise in, is processed and managed by Insolvency Practitioners under the following legislation: The Insolvency Act of 1986 (amended by the Insolvency Act 2000 and the Enterprise Act 2002) introduced a new procedure whereby a debtor could come to an arrangement with his/her creditors to pay his/her debts in full or in part over time as an alternative to bankruptcy.
The Insolvency Service, an independent government agency, has produced a guidance leaflet on dealing with your creditors. In some cases and with some debt solutions a proportion of debt can be written off. The amount written off will depend on your circumstances, income, level of affordability, assets and the current write-off policy of your creditors.