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Institute of Chartererd Accountants


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Your Questions on Bankruptcy

What is bankruptcy?

Bankruptcy is a court process which is used when an individual is unable to pay his or her debts as they fall due. It is an insolvency procedure which allows for the individual’s assets to be shared equally among creditors in proportion to each creditor’s proportionate claim. 

How can I be made bankrupt?
The court makes a bankruptcy order only after a bankruptcy petition has been presented to the court. For creditors to petition for a bankruptcy order, they must be owed at least £750. 

Can a bankruptcy order be made if I (the debtor) am not present at the hearing?
Yes, a bankruptcy order can be made even if the debtor refuses to acknowledge the proceedings and/or refuses to agree to them. If the amount claimed is disputed, it is important that you attempt to reach a settlement prior to the hearing date as attempting to do so after the making of a bankruptcy order is both difficult and expensive. 

What are the consequences of a bankruptcy order?
A bankruptcy order imposes a number of restrictions on the bankrupt, the main ones being: 
• can not act as a director of a UK company 
• unable to obtain credit of £500 or more without advising that a bankruptcy order is in place 
• a bankrupt may have difficulty in obtaining credit even after the bankruptcy order has been discharged. 

Who or what is a trustee?

The trustee is the person appointed by the court to take charge of the bankrupt’s estate on behalf of all creditors. This person is either the Official Receiver (appointed by the Secretary of State) or a Licensed Insolvency Practitioner. 

What are my obligations as a bankrupt?
Once you have been made bankrupt you must (not exhaustive): 
• deliver all books and records to your trustee 
• provide a statement of affairs to your trustee, which is a listing of your assets and liabilities, within 21 days of the bankruptcy order 
• provide details of all bank accounts held for a maximum of three years prior to the date of the bankruptcy (in exceptional circumstances this time period can be extended) 
• stop using your bank accounts and credit cards. 
• not obtain credit over £500 without first disclosing the fact you are a bankrupt, and 
• not make payments direct to your creditors, except in very limited circumstances.

What will happen to my bank accounts if I am made bankrupt?

All your bank accounts will usually be “frozen” when the bank becomes aware of the bankruptcy order.

What will happen to my home?
Your interest in your home will vest in the trustee who will be able to sell it to pay off your debts. If your spouse or children are living in your home, it may be possible to delay the sale of your house, giving you time to make alternative arrangements. 

Can my spouse, family or friends buy my interest from the trustee?
Yes, it is possible for a third party to buy your interest in your home from the trustee. Such an action prevents the sale of your home by the trustee at a further date. This is an option even if there is little or no equity in your property.

How long does a trustee have to sell my interest in my home?
Usually the period is three years but this can be extended by the trustee in certain circumstances. It is important to note that any increase in value in your home could go to the trustee to pay off your debts, even after you are discharged.

What will happen to my other assets?
All of the bankrupt’s assets, whether present or future, will be under the control of the trustee 
who will recover them for the benefit of creditors. There are various exceptions including assets needed to earn a living and income needed for reasonable domestic needs.

What is an Income Payments Order (IPO)?
A trustee can apply to court for an IPO which allows for part of the bankrupt’s income to be paid to the estate for a specified period of time (usually three years) even after the bankrupt has been discharged. 

How long will the bankruptcy order last?
A bankruptcy order usually lasts 12 months providing the bankrupt complies with his or her obligations. 

What is a Bankruptcy Restriction Order (BRO)?
A bankrupt may become subject to a BRO if their actions have been reckless or irresponsible. A BRO can last between 2 and 15 years. A BRO is intended to impose restrictions on the bankrupt after the date of their discharge.

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