Bankruptcy Defined
What is bankruptcy?
Bankruptcy is the position of insolvency. Bankruptcy means that you are not in a position to pay back the money you have amassed and borrowed.
Can I do it myself?
You can do your own bankruptcy. Like many things in life, you can do it yourself. For example, if you're buying your own home, you can do your own conveyancing. If you were to get divorced, you can actually represent yourself in court. However, there are two questions that you want to ask yourself: Do you have the requisite knowledge to do your own bankruptcy? And are you in a position where you don't have any major assets? By this I mean you don't have your own home, your own car or a significant salary. If the answer to those questions is yes, bankruptcy should be pretty straightforward. You can download the forms from the internet, do the paperwork yourself and do your own bankruptcy. However, if you think your situation is more complicated, you want advice and you find that the whole thing is rather too daunting, then you probably want to seek specialist professionals who can assist you with your bankruptcy.
How much do I have to owe to become bankrupt?
Surprisingly, you don't need to owe a large amount of money to be made bankrupt. If you owe more than £750, your creditor, an individual or a company, can actually make you bankrupt. They don't have to ask your permission to do that to you. On the flip side, if you owe more than £5000, it's likely that your bankruptcy will be accepted by the courts. There are two ways to be declared bankrupt: either a creditor can make you bankrupt, or someone you owe money to, or you can do it yourself.
Where can I get advice about bankruptcy?
There are several sources of advice for bankruptcy. You can go to bankruptcy websites, you can get free advice from the Citizens Advice Bureau or you can seek professional advice if your situation is more complex.
What are the alternatives to bankruptcy?
There are several alternatives to bankruptcy. One is called an Individual Voluntary Arrangement. This is an arrangement where you pay your creditors over a fixed period of time for a fixed amount of money. If you've been declared bankrupt already, you can still have an IVA. There are things called debt management plans, which are another alternative to bankruptcy. Otherwise, if you do have funds, but not enough funds to clear all your debts, you can actually negotiate with your creditors and have a full and final settlement of your debt. The important thing, though, is not to bury your head in the sand. You must deal with your debts.
Are there different types of bankruptcy?
There are two types of bankruptcy. It depends on who's making you bankrupt. If the person you owe is making you bankrupt, that's called a Creditor's Bankruptcy Petition. A creditor can make you bankrupt if you owe more that £750 - that's all: £750. If you're doing your own bankruptcy, it's called a Debtor's Bankruptcy Petition. If you're in an IVA, the IVA supervisor could make you bankrupt. Before a bankruptcy petition is issued by a creditor, they have to issue you with a statutory demand. That demand states that you must pay, otherwise they may make you bankrupt, but it doesn't necessarily mean that they will.
What is an Official Receiver?
The Official Receiver deals with your bankruptcy. They are a civil servant and they're acting on behalf of your creditors to realise any monies which can be used towards paying off your debts. In some cases the Official Receiver won't be a civil servant. An Insolvency Practitioner will be appointed as a Trustee in Bankruptcy. These bankruptcy cases are where property is involved.
Is it always a government official who deals with bankruptcy cases?
It's not always the case that a government official deals with your bankruptcy. If it is a government official, they're a civil servant and they are called the Official Receiver. However, when property is involved, they quite often transfer the Trustee in Bankruptcy role to the private sector. It could be an insolvency practitioner that deals with your bankruptcy.
What is a bankruptcy restriction order or undertaking?
A bankruptcy restriction order and a bankruptcy restriction undertaking are quite similar. Basically, with the change in the law in 2004, there is automatic discharge after one year. As I said, it is automatic. However, if the Official Receiver, who is the trustee in bankruptcy looking after the bankruptcy case, believes that something untold has happened in your financial affairs, then a bankruptcy restriction undertaking may be made. To give you an example, there are huge gambling debts, or you haven't co-operated with the Official Receiver. The undertaking is voluntary and it means that you are restricted for between two and fifteen years. However, if you disagree with it, they may apply to the courts for a bankruptcy restriction order and then it is a court ordered restriction to curb your activities, again between two and fifteen years.
What are assets?
Assets are things that you own. Let's give you a few examples: your home - generally that's an asset. Let's put some numbers to this: you buy your flat for £200,000 and your mortgage is £180,000. The actual asset value to you is £20,000. The rest of it is owned by the bank. Your car is an asset and your income is an asset. Other assets include things like shares, premium bonds, ISAs, etc. Anything which has value, that you own, is an asset during bankruptcy.
What is a creditor?
A creditor is simply someone you owe money to. If you borrow a tenner off Dad, Dad is a creditor. If you borrowed £1,000 from a bank, they are a creditor. Anyone is a creditor if you owe them money.
What is a debtor?
A debtor is someone who owes you money. They have the debt, they are the debtor and they owe you money. Sometimes it could be confusing but it can be quite a good thing to have lots of debtors, because it means lots of people owe you money!
How will bankruptcy restrict me?
Bankruptcy restricts you for usually one year. With the Enterprise Act of 2004, you're automatically discharged after a year when the restrictions fall away. What are these restrictions of bankruptcy? For most people, they come in two forms: one is what kind of job you can do, and the other is how much can you borrow. Surprisingly, in bankruptcy, you're still allowed to borrow money. If you're borrowing less than £500, that's fine. If you're borrowing more than £500, you must let the lender know that you're in undischarged bankruptcy. In terms of your professional life, you're restricted from being an MP, a councillor and even a child minder. Strange, huh? Those are the actual restrictions of bankruptcy. However, if you're working in the financial sector, professionally you're also restricted, and it's very good to get specialist advice if you're thinking about your career aspirations and how bankruptcy might affect you.
