Bankruptcy is used to deal with an individual who is unable or unwilling to pay their debts.
How is an Individual Made Bankrupt
An individual can be made bankrupt in the following ways:
- The individual themselves may apply online to declare themselves bankrupt.
- A creditor who is owed £5,000 or more can petition for an individual to be made bankrupt on the grounds that the debtor cannot pay their debt.
- In certain situations, the supervisor of a voluntary arrangement can petition if a voluntary arrangement has failed.
Petitions by a creditor or supervisor are made to the local court responsible for making a bankruptcy order.
What Happens Once the Bankruptcy Order is Made?
In the first instance, the official receiver (OR) is appointed as trustee and receives the bankrupt’s estate by virtue of the bankruptcy order. The OR has a duty to investigate the bankrupt’s affairs and submit a report to the creditors. In some circumstances where there is support from a majority of creditors, the OR may request the Secretary of State to appoint a licensed insolvency practitioner as trustee. The OR can also appoint a licensed insolvency practitioner in certain circumstances off the OR rota.
What does a Trustee in Bankruptcy do?
The duties of a trustee are to:
- Realise assets within the bankrupt’s estate.
- Agree creditors’ claims and distribute funds by way of dividend.
- Report to creditors on the progress of the bankruptcy on an annual basis.
- Issue the final report on the administration of the estate.
What Happens if Someone is Made Bankrupt?
- A bankrupt will be unable to hold a job in certain areas of employment (e.g. solicitor).
- A bankrupt will have to give up any assets of value and may lose the financial interest in their home.
- A bankrupt is unable to apply for credit in excess of £500 without telling the lender of their bankruptcy.
- A bankrupt may not act as a director of a company, or create, manage or promote a company without the court’s permission.
- A bankrupt will be discharged from bankruptcy after 12 months from the date they were made bankrupt. Discharge does not result in the assets reverting back to the bankrupt, although the trustee has a period of three years in which to deal with the matrimonial home or, if not dealt with, this will re-vest at the end of the three year term. However, if there is evidence of criminal, dishonest or careless behaviour, the OR may apply to the court for a Bankruptcy Restriction Order, which could maintain the bankruptcy for anywhere between 2 and 15 years.
What Services can PBC Business Recovery and Insolvency Undertake?
PBC is one of the few insolvency firms licensed by the FCA to offer debt counselling advice. Only a FCA licensed firm can provide bankruptcy advice.
PBC Business Recovery and Insolvency can undertake the following services:
- We can advise you whether bankruptcy is appropriate.
- Where appropriate, we will explain the procedure you need to follow to petition for your own bankruptcy.
- Review the alternatives to bankruptcy, if appropriate.
- We can act on behalf of creditors concerned about an individual and if appropriate arrange for solicitors to assist you in the presentation of a bankruptcy petition.
- Depending on the issues surrounding the individual, we can agree to act as trustee.