Bankruptcy is one of the most conclusive solutions to debt problems and is often seen as the final option. During the Bankruptcy process any assets that you may have will be used to pay your creditors. You will then be put under certain restrictions until you are discharged from your bankruptcy after an allocated period of time.
Any debtor can apply for bankruptcy whether you are an individual, sole trader or partnership. The act of being declared bankrupt can only be performed by a court and not all courts have the powers to deal with bankruptcy cases. To begin the Bankruptcy process you will need to petition a court which deals with these cases. There are also certain fees that apply at this stage.
After your application for bankruptcy you will be required to hand any assets over to an appointed ‘trustee’ who will then manage your bankruptcy. The trustee will either be the Official Receiver or an Insolvency Practitioner (again this depends on your financial situation).
If you are declared bankrupt there will be a number of financial restrictions applied to you. These include; fully co-operating with your Official Receiver and trustee, handing over your credit cards to the Official Receiver and not making any further payments to your creditors (the non-payment rule). There may be exceptions to the non-payment rule if you have creditors still listed outside of your bankruptcy, a student loan owing to the Student Loan Company, for example.
You are also not allowed to; borrow over £500 without telling your lender that you are bankrupt, act as the Director of a company, create/manage/promote a company without the court’s permission and work as an insolvency practitioner.
The length of a bankruptcy is also depend on your situation but most bankruptcy terms last for 12 months from the date you were declared bankrupt. If you are financially careless, dishonest or criminal however your bankruptcy restrictions could last from 2 to 15 years after your bankruptcy ends.
The bankruptcy process can be intimidating, which is why a number of professional companies and charities now assist individuals through the procedure.