Bankruptcy—its process and implications
There are four ways by which a person can be declared bankrupt.
Voluntarily: When an individual debtor thinks he cannot repay his loans despite his best efforts, he may apply for bankruptcy.
Involuntarily: A creditor can file for bankruptcy against an individual who has not paid back his money. For this, the debtor should owe a minimum sum of £750 to the creditor.
Officiating supervisor: The supervisor appointed by a bankruptcy court or anyone bound by an IVA can declare a person bankrupt.
The court: The court can issue a bankruptcy order if the debtor does not cooperate with the court once the bankruptcy proceedings have been initiated against him, or, does not acknowledge the proceedings or agree to them.
Advantages of filing for bankruptcy
- The debtor is relieved of the pressure of personally dealing with his creditors. Once a person is declared bankrupt, the control of his finances is passed to a receiving officer and a trustee. Once this is done, the creditors have to deal with the trustee and not with the debtor.
- He can make a fresh start in his life, normally, after one year.
- Most money owed to the creditors is written off.
- He does not have to face court action after the bankruptcy proceedings have started.
Disadvantages of filing for bankruptcy
A person who has been declared bankrupt has to deal with some restrictions. He cannot get credit for many years after the annulment. He may be publicly examined by a court. Besides this, he cannot
- Use his assets.
- Obtain a credit exceeding £250 without the permission of his lender/s.
- Be made a director of a company.
- Promote, form or manage a limited company (LTD) without the permission of the court.
- Start a new trade under any name other than the existing one without informing all those involved in the bankruptcy case.
- Practice as a chartered accountant or a lawyer.
- Become a member of parliament or a member of the local authority.
Obligations of a person who has been declared bankrupt
A person who is declared bankrupt has to:
- Advertise his situation in the local press and the London Gazette
- Fill in numerous forms and meet the Official Receiver and Trustee who investigate his financial affairs
- Close his business and dismiss the employees immediately
- Lose all his assets of real value including home, life insurance, insurance settlements, inheritance and possibly pension
- Inform the landlord, building society and creditors
- Close all bank and credit card accounts
- Return to the owner anything he might be leasing or buying on hire-purchase such as car
- Lose all the professional and business status
- Lose some employment opportunities and face rejections from numerous associations and societies
- Lose his job if he is a lawyer, soldier or an accountant.