Bankruptcy

What is Bankruptcy?

Bankruptcy is the administration of the affairs of an insolvent individual by a Trustee, generally in the interest of the creditors. The proceedings begin with the making of a Bankruptcy Order by the court. As soon as the Order is made, an Official Receiver becomes the receiver and manager of your estate, pending the appointment of a Trustee. Where there are significant assets, an Insolvency Practitioner is usually appointed to act as Trustee by the creditors or by the Secretary of State. If no Insolvency Practitioner is appointed, the Official Receiver acts as Trustee.

You, or any creditor that is owed more than £750, can apply for a Bankruptcy Order. Once the Order is made, you lose any rights to your property apart from any equipment you need for your business, your basic domestic equipment such as clothes, bedding and furniture, and certain pension rights. There are special rules regarding your home. Generally, if you have equity in your home, it may have to be sold if a third party cannot be found to purchase the equity. The Trustee is unable to force the sale for the first 12 months of Bankruptcy if you are married or you have young children living with you. The Trustee has three years from the date of the Bankruptcy order to deal with the equity in the property. After that time, the home reverts back to you.

What do I have to do?

You must co-operate with the Official Receiver and/or Trustee so that the Bankruptcy process can run smoothly. This includes disclosing all assets and liabilities, and attending meetings when asked. As a Bankrupt, there are certain restrictions placed on you that usually last until you are discharged. The assets of your estate will remain with the Trustee until they have been realised, and your credit rating may be affected.

The restrictions mean you cannot:

• Obtain credit of more than £500
• Do business under a different name, or
• Act as a company director without court consent.

If it is considered that you have excessive surplus income you may be required to make contributions to the Bankruptcy estate for up to three years. This is known as an Income Payments Order (IPO).

How will Armstrong Watson help?

As Trustee, our function is to realise the assets and distribute them among creditors in a prescribed order of priority.

Our duties include:

• Advertising appointment if necessary and liaising with the Official Receiver
• Liaising with creditors and dealing with correspondence
• Valuing and realising all assets in your estate
• Agreeing creditors’ claims
• Reporting to creditors
• Monitoring your income
• Filing all statutory paperwork
• Paying dividends

How long does Bankruptcy take?

You will usually be discharged from the Bankruptcy automatically after one year, or sooner if the Official Receiver decides to close the file early. Once discharged, you will be released from your Bankruptcy debts, with the exception of court fines, matrimonial debts and all student loans. You will not have any right to take back assets once you have been discharged, as they remain the property of the Trustee until they are realised. However, if the Official Receiver applies to court to impose a Bankruptcy Restrictions Order (BRO) the Bankruptcy will remain in place for up to 15 years.

How much will Bankruptcy cost?

A Trustee is paid out of the asset realisations and costs depend on the complexity of the case and how long the Bankruptcy lasts.