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Individuals PAYE / Employed - Bankruptcy

What is Bankruptcy?

Bankruptcy is one way of dealing with debts you cannot pay. Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due. For a first time bankruptcy within a 15 year period, for debts under £20,000, the procedure is known as a Summary Administration and you may be discharged after two years. A first time bankrupt with debts over £20,000 may be discharged after three years.

Although bankruptcy has a bad stigma and is publicly advertised, it should always be considered when dealing with individual insolvency cases. Please note that if you are ever faced with the prospect of bankruptcy you should look at alternatives as soon as possible such as an Individual Voluntary Arrangement procedure (IVA).

Anyone can go bankrupt, including individual members of a partnership. There are different insolvency procedures for dealing with companies and for partnerships themselves.

How are you made bankrupt?

An individual can be made bankrupt either in one of three ways. Voluntarily - By the debtor themself. Involuntarily - By a creditor owed money (£750 Minimum). The supervisor of an IVA

A bankruptcy order can still be made even if you refuse to acknowledge the proceedings or refuse to agree to them. You should therefore co-operate fully once the bankruptcy proceedings have begun. If you dispute the creditor's claim, you should try and reach a settlement before the bankruptcy petition is due to be heard. Trying to do so after the bankruptcy order is made, is both difficult and expensive.

What are the implications of bankruptcy?

You lose control of your assets. You cannot obtain credit for over £250 without advising the lender that you are an un-discharged bankrupt. You cannot act as a company director. You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court. You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy. You may not practice as a Charted Accountant / Lawyer. You may not act as a Justice of the peace (JP). You may not become an member of parliament. You may not become a member of the local authority Your credit is affected for many years after the annulment. You may be publicly examined in court.

What are the advantages of bankruptcy?

For the person involved, bankruptcy provides relative peace of mind and possible automatic discharge after two or three years and subject to some restrictions, could free you from overwhelming debts so you can make a fresh start.

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