Shazmina Ghumra
Trainee Solicitor
10 Oct, 2010

Bankruptcy is effectively being in a financial status, in which you are unable to pay your debts. Bankruptcy allows you to make a fresh start financially, however your existing assets such as any funds in an account will be divided proportionately between your creditors.Being in bankruptcy has many implications including having to give up any interest you may have in your home, closure of your business and dismissal of any employees.

You can be made bankrupt in one of two ways, firstly either by petitioning for your own bankruptcy, known as a "debtors petition" or by one or more creditors who are owed more than £750.00 petitioning to make you bankrupt; this is known as a "creditors petition". If you dispute that you owe money to the petitioning creditor you should act on it as soon as possible and in advance of any bankruptcy hearing, otherwise it may be too late. It may, depending on your circumstances, be possible to enter into a payment plan with your creditors which allows you time to pay off your debts in a way manageable and affordable to you.

Upon a Petition being successful at Court, upon you being made bankrupt your assets are held by the Official Receiver. The Official Receiver (or the Trustee in Bankruptcy) is required to take control of your assets and keep them secure until an Insolvency Practitioner is appointed. It is the job of the Insolvency Practitioner to then distribute your assets amongst your creditors.

As a bankrupt you have a duty to inform the official receiver of your assets and the people who you owe monies to. You are required to provide access to your assets to the official receiver even funds acquired during your bankruptcy, for example if you have an increase in your income or inherit assets under a Will.

Whilst in the state of bankruptcy, you must ensure you do not make payments to creditors direct or obtain credit of more than £500.00 (without first informing the person providing credit of your bankruptcy). You must also note that it is a criminal offense to be concerned with the above if you are an un-discharged bankrupt.

The period of bankruptcy is usually a maximum of 12 months, after which you will be "discharged". However this period could be less if the official receiver deems this to be suitable and files a Notice with the Court. Alternatively the Official Receiver could apply to postpone the discharge if you have not complied with your duties during your bankruptcy period.

Being a bankrupt severely restricts your ability to manage your finances, and will have a greater impact on those who may be financially dependent on you, such as your spouse or young children. It is vital therefore that upon discovering you are in financial difficulty or are unable to manage your debts, you seek advice from a solicitor within this field of work. For more information please contact us on the details provided.