There are two main personal insolvency
regimes in the UK: one for England and Wales
and another for Scotland. In England and
Wales the majority of personal insolvencies
are “bankruptcies". The remainder are
Individual Voluntary Arrangements or
IVAs, which are arrangements between the
debtor and his or her creditors for the
payment of the debts on different terms: for
example by instalments, or over a period of
time. These two forms of insolvency have
close equivalents in Scotland, where
bankruptcies are known as sequestrations and
the equivalent of IVAs are Protected Trust
Deeds, or PTDs.
In bankruptcy, an indebted individual sees
his debts forgiven in return for
surrendering his assets (and sometimes a
limited proportion of his income). He is
allowed however to retain so-called “exempt”
assets such as tools-of-trade and basic
necessities and the generosity of this
exemption level has received much attention
in the USA where it varies among states,
potentially affecting bankruptcy filing
rates.
Bankruptcy is handled by a Trustee in
bankruptcy who must be either the Official
Receiver (a civil servant) or a licensed
insolvency practitioner. For more help on
Bankruptcy frequently asked
questions click here.
Following the introduction of the Enterprise
Act 2002's bankruptcy provisions in April
2004, an England & Wales bankruptcy will now
normally last no longer than 12 months and
may be less, if the Official Receiver files
in Court a certificate that his
investigations are complete. However, in
cases where the bankrupt is considered
particularly culpable for his or her
insolvency, the bankruptcy can last for up
to 15 years, although such orders are rare.
In the UK, the term bankruptcy is reserved
for individuals; a company which is
insolvent may be put into liquidation
(sometimes referred to as
winding-up).
To get a more information , about
Bankruptcy , from our specialist
Debt Solution partners please complete our
simple online "Debt
Solution Callback
Request" form which asks for some very
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needs. Alternatively please either use the "Contact us"
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alternative "Finance Solution"
providers. BANKRUPTCY
FREQUENTLY ASKED QUESTIONS *
source Guide to Bankruptcy
www.insolvency.gov.uk
- What is bankruptcy?
Bankruptcy is one way of dealing with
debts you cannot pay. The bankruptcy
proceedings free you from overwhelming
debts so you can make a fresh start,
subject to some restrictions; and make
sure your assets are shared out fairly
among your creditors. Anyone can go
bankrupt, including individual members
of a partnership. There are different
insolvency procedures for dealing with
companies and for partnerships
themselves. Separate publications about
these insolvency procedures are
available.
- How are you made bankrupt?
A court makes a bankruptcy order only
after a bankruptcy petition has been
presented. It is usually presented
either by yourself (debtor’s petition)
or by one or more creditors who are owed
at least £750 by you and that amount is
unsecured (creditor’s petition).
A bankruptcy order can still be made
even if you refuse to acknowledge the
proceedings or refuse to agree to them.
You should therefore co-operate fully
once the bankruptcy proceedings have
begun. If you dispute the creditor’s
claim, you should try and reach a
settlement before the bankruptcy
petition is due to be heard. Trying to
do so after the bankruptcy order has
been made is both difficult and
expensive.
- Where is the bankruptcy order made?
Bankruptcy petitions are usually
presented at the High Court in London or
at a county court near to where you
trade or live. A petition can be
presented against you even if you are
not present in England or Wales at that
time. This can happen when you normally
live in, or within the previous 3 years
have had residential or business
connections with, England or Wales.
Sometimes government departments start
bankruptcy proceedings in the High Court
in London or in one of the District
Registries. If you did not trade or do
not live in the London area, your case
will usually be transferred to the
appropriate local county court and, if a
bankruptcy order is made, it will be
dealt with by the local Official
Receiver. Once the bankruptcy order has
been made, it is advertised in “The
London Gazette” (an official publication
which contains legal notices) and in a
local or national newspaper (or both).
In addition the Official Receiver will
give written notice of the order to a
number of organisations.
- Who will deal with your case?
a. The Official Receiver
An Official Receiver is appointed by the
Secretary of State and is an officer of
the court. The Official Receiver has
responsibility for administering your
bankruptcy and protecting your assets
from the date of the bankruptcy order.
He or she will also act as trustee of
your bankruptcy estate unless an
insolvency practitioner is appointed.
b. An insolvency practitioner
Insolvency practitioners are individuals
who specialise in insolvency work. An
insolvency practitioner, who must be
authorised by either the Department of
Trade and Industry or the appropriate
professional body, can be appointed
trustee instead of the Official
Receiver. He or she is then responsible
for disposing of your assets and making
payments to your creditors.
- How will bankruptcy affect you?
a. In relation to your creditors
If you are made bankrupt, you must not
make payments direct to creditors.
Creditors to whom you owe money when you
are made bankrupt make a claim to your
trustee (that is, either the Official
Receiver or an insolvency practitioner).
They should not ask you directly for
payment; if you receive any requests,
pass them immediately to your trustee to
deal with and tell the creditor that you
are bankrupt. There are some very
limited exceptions to this non-payment
rule. The main ones are:
- secured creditors, such as
creditors who have a mortgage or
charge on your home Note: If
mortgage payments are not made, the
lender may sell your home.
- non-provable debts, such as
court fines and other obligations
arising under an order made in
family proceedings or under a
maintenance assessment made under
the Child Support Act 1991.
Non-provable debts are not included
in the bankruptcy proceedings and
you are still responsible for paying
off such debts; and benefit
overpayments, where the Department
for Work and Pensions (DWP) can
recover any benefit overpayments
from any further benefits you
receive.
- Student loans, since 1 September
2004 all outstanding student loans
cannot be claimed in bankruptcy.
They remain the responsibility of
the (former) student to repay within
the terms of the loan arrangement.
If you were made bankrupt before 1
September 2004 you may still have to
repay your student loan.
Clarification should be requested
from the Official Receiver who is
dealing with your affairs.
- Suppliers of services to your
home (gas, electricity, water and
telephone) may not demand from you
payment of bills in your name which
are unpaid at the date of the
bankruptcy order. But they may ask
you for a deposit towards payment
for further supplies or could
arrange for the accounts to be
transferred into the name of your
spouse or partner. You must pay
continuing commitments such as rent
(if you rent your home), together
with any debts you incur after the
bankruptcy.
b. Payment to creditors
The Official Receiver will tell your
creditors that you are bankrupt. He
or she may either act as the trustee
or may arrange a meeting of
creditors for them to choose an
insolvency practitioner to be the
trustee. This happens if you appear
to have significant assets. You may
have to go to this (or any other)
meeting of your creditors.
The trustee will tell the creditors
how much money will be shared out in
the bankruptcy. Creditors then have
to make their formal claims. The
costs of the bankruptcy proceedings
are paid first from the money that
is available. The costs include fees
that the Official Receiver or the
insolvency practitioner charge for
administering your case.
At least part of the claims from
your employees (if any) may be
preferential and are paid next,
along with any other preferential
debts. Finally, other creditors are
paid, together with interest on all
debts, as far as there are funds
available from the sale of your
assets. If there is a surplus, it
will be returned to you. You would
then be able to apply to the court
to have your bankruptcy ‘annulled’
(cancelled).
When your trustee makes a payment to
your creditors, he may place an
advertisement about your bankruptcy
in a newspaper asking creditors to
submit their claims. Depending on
how long it takes your trustee to
deal with your assets, this
advertisement may appear several
years after the bankruptcy order.
c. Your assets
You will no longer control your
assets. You can keep the following
items unless their individual value
is more than the cost of a
reasonable replacement:
- tools, books, vehicles and
other items of equipment which
you need to use personally in
your employment, business or
vocation;
- clothing, bedding,
furniture, household equipment
and other basic items you and
your family need in the home.
All these items must be
disclosed to the Official
Receiver who will then decide
whether you can can keep them.
The Official Receiver/trustee
will take control of all your
other assets on the making of
the bankruptcy order. He or she,
or any insolvency practitioner
who is appointed as trustee,
will dispose of them and use the
money to pay the fees, costs and
expenses of the bankruptcy and
then your creditors. If
appointed, the insolvency
practioner’s fees for acting a
trustee are also paid from the
money raised by selling your
assets.
The trustee may apply to the
court for an order restoring
property to him or her if you
disposed of it in a way which
was unfair to your creditors
(for example, if before
bankruptcy you had transferred
property to a relative for less
than its worth). The trustee may
claim property which you obtain
or which passes to you (for
example, under a will) while you
are bankrupt.
A student loan made before or
after the start of a student's
bankruptcy is not regarded as an
asset that the trustee may
claim, if a balance of the loan
remains payable.
If you have made a claim against
another person through court
proceedings, or you think you
may have a claim (a right of
action) against another person,
the claim may be an asset in the
bankruptcy.
d. What happens to your home
If you own your home, whether
freehold or leasehold, solely or
jointly, mortgaged or otherwise,
your interest in the home will
form part of your estate which
will be dealt with by your
trustee. The home may have to be
sold to go towards paying your
debts.
If your husband, wife or
children are living with you, it
may be possible for the sale in
the bankruptcy to be put off
until after the end of the first
year of your bankruptcy. This
gives time for other housing
arrangements to be made. Your
husband, wife, partner, a
relative or friend may be able
to buy your interest in your
home from the trustee. This may
be so even if that interest is
very small, worth nothing or you
owe more on the house than it is
currently worth. Such a purchase
would prevent a sale of the
property by the trustee at a
future date. Your spouse or any
other interested party should be
encouraged to take legal advice
about the home as soon as
possible.
If the trustee cannot, for the
time being, sell your home, he
or she may obtain a charging
order on your interest in it,
but only if that interest is
worth more than £1,000. If a
charging order is obtained, your
interest in the property will be
returned to you, but the legal
charge over your interest will
remain. The amount covered by
the legal charge will be the
total value of your interest in
the property and this sum must
be paid from your share of the
proceeds when you sell the
property.
Until your interest in the home
is sold, or until the trustee
obtains a charging order over
it, that interest will continue
to belong to the trustee but
only for a certain period,
usually 3 years, and will
include any increase in its
value. Therefore, the benefit of
any increase in value will go to
the trustee to pay your debts,
even if the home is sold some
time after you have been
discharged from bankruptcy: the
increase in the value will not
be yours.
If, after a certain time,
usually 3 years, your trustee
has not sold or obtained a
charge over your interest in the
property, or applied for an
order of possession or obtained
a charging order against the
property, or you have not come
to any arrangement with your
trustee about that interest, it
may be returned to you.
e. Your pension
A trustee cannot usually claim a
pension as an asset if your
bankruptcy petition was
presented on or after 29 May
2000, as long as the pension
scheme has been approved by the
Inland Revenue.
For petitions presented before
29 May 2000, trustees can claim
some kinds of pensions. A
separate publication called
“What will happen to my
pension?” is available from your
local Official Receiver’s office
or The Insolvency Service
Publications Order Line (address
on back cover).
If you are receiving a pension
or become entitled to do so
before you are discharged, the
pension is included as income
for the purposes of an income
payments order (IPO).
f. Your life assurance policy
Generally, your trustee will be
able to claim any interest that
you have in a life assurance
policy. The trustee may be
entitled to sell or surrender
the policy and collect any
proceeds on behalf of your
creditors. If the life assurance
policy is held in joint names,
for instance with your husband
or wife, that other person is
likely to have an interest in
the policy and should contact
the trustee immediately to
discuss how their interest in
the policy should be dealt with.
You may want the policy to be
kept going. Ask your trustee: it
may be possible for your
interest to be transferred for
an amount equivalent to the
present value of that interest.
If the life assurance policy has
been legally charged to any
person, for instance an
endowment policy used as
security for the mortgage on
your home, the rights of the
secured creditor will not be
affected by the making of the
bankruptcy order. But any
remaining value in the policy
may belong to your trustee.
g. Work-related registrations,
licences and permissions
Any registration, licence or
permission you hold in
connection with your work or
trade might be affected by the
making of the bankruptcy order.
You should inform the person who
issued the registration or
authority of your bankruptcy to
establish if it will remain in
force or will be cancelled or
withdrawn. Any value attaching
to these items may belong to the
trustee. In considering this
issue you should disregard items
of a personal nature such as a
driving licence.
h. Your business
If you are self-employed, your
business is normally closed down
and any employees are dismissed.
Any business assets will be
claimed by the trustee unless
they are exempt and you will
have to give the Official
Receiver all your accounting
records. You are still
responsible for completing all
tax and VAT returns. Your
employees may be able to make a
claim to the National Insurance
Fund for outstanding wages and
holiday pay, payment in lieu of
notice, and redundancy.
Employees can claim in the
bankruptcy for any money owed
that is not paid by the National
Insurance Fund.
There is nothing to prevent a
bankrupt from being
self-employed. So you can start
to trade again, subject to
restrictions. You will be
responsible for keeping
accounting records for this
business and for dealing with
the tax and VAT requirements for
the new business. You will need
to register again for VAT if you
meet the registration
requirements. You should not
continue to use your
pre-bankruptcy VAT registration
number.
i. Your wages
Your trustee may apply to court
for an income payments order
(IPO), which requires you to
make contributions towards the
bankruptcy debts from your
income. The court will not make
an IPO if it would leave you
without enough income to meet
the reasonable domestic needs of
you and your family. If you have
an increase or decrease in
income, the IPO can be changed.
IPO payments continue for a
maximum of 3 years from the date
the order is made by the court
and may continue after you have
been discharged from your
bankruptcy. Or you may enter
into a written agreement with
your trustee, called an income
payments agreement (IPA), to pay
a certain amount of your income
to the trustee for an agreed
period, which cannot be longer
than 3 years. There are no fixed
guidelines on IPOs or IPAs -
each case is assessed
individually.
- How long does
bankruptcy last?
If you were made bankrupt on or
after 1 April 2004 , you will be
automatically freed from
bankruptcy (known as
“discharged”) after a maximum of
12 months. This period may be
shorter if the Official Receiver
concludes his enquiries into
your affairs and files a notice
in court.
- Alternatives to bankruptcy
It may be better for both you
and your creditors to use one of
these alternative procedures
instead of bankruptcy.
a. An informal arrangement or
“family arrangement”
If you know that you cannot pay
all your debts, you could
consider writing to your
individual creditors to see if
you can reach some compromise.
Include a timetable of when you
will repay them. The
disadvantage with an informal
arrangement is that it is not
legally binding so your
creditors could ignore it later
and ask you to pay in full. Your
local Citizens Advice Bureau can
advise and help you make this
kind of arrangement.
b. Administration orders
If one or more of your creditors
has obtained a court judgment
against you, the county court
may make an administration
order. Administration is a
court-based procedure whereby
you make regular payments to the
court to pay towards what you
owe your creditors. Your total
debts must not be more than
£5,000 and you will need enough
regular income to make weekly or
monthly repayments. You do not
have to pay a fee for an
administration order but the
court will take a small
percentage from the money you
pay towards its costs. If you do
not pay regularly, the order
could be cancelled and you may
become subject to the same
restrictions as someone who is
bankrupt. If your circumstances
change and you cannot pay as
ordered, you can apply to the
court to change the order. The
court which made the order will
tell you what to do. Details of
administration orders are
available at your local county
court.
c. Individual voluntary
arrangements
This is a formal version of the
arrangement described at (a). An
individual voluntary arrangement
begins with a formal proposal to
your creditors to pay part or
all of your debts. You need to
apply to the court and you must
be helped by an insolvency
practitioner. Any agreement
reached with your creditors will
be binding on them.
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