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Bankruptcy Rules - Advice and Information

(please note: some of this guidance applies to the law in England and Wales only, as Scottish Law can be different)

See also the main page offering Bankruptcy Advice, and the Bankruptcy Questions page.

The same thing applies here as with many aspects of debt problems - don't ignore it! A Bankruptcy Order can be made irrespective of whether you agree or even acknowledge it. The process can be instigated even if you are out of the country, so it is always best to face up to it and co-operate once the proceedings have begun.

The Official Receiver and Insolvency Practitioners

Someone will be appointed to look after your bankruptcy proceedings. This will either be an Official Receiver, or an Insolvency Practitioner. In both cases this person will act as your 'Trustee', and take responsibility for protection and disposal of your assets. I will refer to the Official Receiver or Insolvency Practitioner as your Trustee for the rest of this section.

Bankruptcy Rules - Your Responsibilities As A Bankrupt Person

You need to provide full information to your Trustee about your finances. This may be done through a questionnaire or an interview. You should provide a full list of all your creditors and exactly how much you owe to each.

You have a duty to preserve your assets and hand them over to your Trustee with a full list detailing all your assets. This must include related paperwork such as bank statements, insurance policies, etc.

Keep the Trustee informed about any assets or income you come into possession of during your bankruptcy.

Immediately stop using any bank, building society or credit card, and do not apply for any credit in excess of £500 without disclosing that you are a bankrupt.

Bankruptcy Rules - What You Can No Longer Do

Certain things become a criminal offence when you are made bankrupt. The first thing (as mentioned above) is that you can not obtain credit of £500 or more without disclosing that you are bankrupt.

You are not allowed to carry on a business under any name other than that in which you were declared bankrupt, unless you tell all those with whom you do business the name under which you were made bankrupt. Neither are you allowed to act as a company director or be involved in any way with the formation of a limited company, unless you have permission from The Court.

Bankruptcy Rules - Payments To Your Creditors

Once you are bankrupt you must not normally make any payments directly to your creditors. Your Trustee will deal with claims from your creditors and make any payments due to them. The only exceptions to this are in relation to the following:

Your Trustee will inform your creditors about your bankruptcy and tell them how much money is available to be shared out among them. Creditors then have to make claims on how much they are owed. The available money is used first to pay the costs of the bankruptcy to the Official Receiver and Insolvency Practitioner. If there is any surplus after selling your assets and settling your debts, this will be returned to you.

Bankruptcy Rules - Control and Disposal of Your Assets

When you are made bankrupt you no longer have control over your assets, responsibility for which passes to your Trustee. It is up to the Trustee to dispose of your assets and use the money raised to settle your debts, including paying their own administration fees.

Your Trustee can claim back via a Court Order any property that you are deemed to have disposed of in such a way that does not get the best return for creditors. For example if you give things away, transfer ownership or sell things below their market value. Similarly, the Trustee can claim any assets including property, which you come into possession of during the bankruptcy.

As your home is likely to be one of your biggest assets, this too may be sold to pay off creditors. This applies in relation to your share in the property, even if it mortgaged or jointly owned. If you have your family living with you in the house it might be possible to delay selling the property until after the first year of bankruptcy. Sale of the property might also be prevented if you have a spouse, partner, relative or friend is prepared to buy your interest in the property from the Trustee.

If you have a pension fund a Trustee cannot normally claim this as an asset. Life insurance Policies, however, can be sold or surrendered by the Trustee to raise funds to pay creditors.

Bankruptcy Rules - Businesses and Wages

If you have a business, it will normally be closed down and any staff will lose their jobs. Any assets from your business will be taken over by the Trustee, as with all your personal assets. However, you will not be prevented from being self employed while you are bankrupt, and you will generally be allowed to keep any essential tools you need to earn your income.

Assuming you have an income, your Trustee can apply to The Court for an Income Payment Order (IPO) to get payments from your income towards your debts. Such orders continue for up to three years, which can extend beyond your official bankruptcy period.

Bankruptcy Rules - How Long Does Bankruptcy Last?

Your bankruptcy will last for no more than twelve months, after which you are discharged. If your debts are all paid off before the term of the bankruptcy, the Court will normally cancel the bankruptcy, at which point you are immediately freed from it.

For more general advice about when Bankruptcy is the appropriate choice, see the main Bankruptcy Advice Page.

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