Bankruptcy
What is bankruptcy?
Insolvency / Bankruptcy is an option to clear your debts. In this process a Trustee or an Official Receiver sells your permitted assets to pay off your creditors. When you apply for bankruptcy, it usually takes one year to get discharged so that the borrower can start afresh.
You may file a bankruptcy petition in the High Court in London or in a County Court near you. Local courts do not deal with the bankruptcy cases. A creditor may also file a bankruptcy petition against you if it owes at least £750 as unsecured loan. However, in both the situations, the effect will be the same.
Insolvency / Bankruptcy Procedure:
To start, you will have to make a petition in the court for bankruptcy. The petition will include details of your financial status. The court determines the validity of the petition and accordingly makes an order for bankruptcy. The court also appoints an Official Receiver if the petition is granted. The Official Receiver will begin bankruptcy proceedings.
The insolvency practitioner will go through your financial and personal details that include pension policies, assets and National Insurance number along with earnings and expenditures. He will deal with all the creditors and decide what should be done with your assets.
When you file for bankruptcy your assets will be sold off to pay off your debts. If a portion of the debt remains, it gets written off. Bankruptcies assert certain restrictions on the individual during its proceedings.
Bankruptcy forms are available online now. You can visit www.insolvency.gov.uk and fill up the form with details of income, expenditures, assets and debts and save it. All you would need to do is print the form and produce it to the court as usual.
Until 31st March 2004 the bankrupts were discharged automatically in 2 or 3 years. However, if you were made bankrupt on or after 1st April 2004, you will be automatically discharged in 1 year.
If you are thinking about applying for bankruptcy, get ready for the day at bankruptcy court or read more about the bankruptcy process in UK.
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Cost of petitioning for Insolvency / Bankruptcy:
Bankruptcy rules have changed after 2004 under the Enterprise Act. At present the cost of bankruptcy in UK County Court is £510 and £522 in the High Court (£12 is charged in the High Court or before a solicitor)
- £150 as Court fee.
- £360 as Official Receiver’s deposit.
- £12 to swear the statement of affairs (in the High Court or before a Solicitor)
In High Court and County Courts, there is a system for remission of fees for those who cannot afford to pay fees. To achieve this, you will have to submit the form EX160 (available in the Court).
If you are a married couple or business partners, you must pay separate fees for bankruptcy. For a joint bankruptcy, one needs to apply for a petition under the Insolvent Partnership Order 1994 (Form 16).
The fees should be paid in cash or postal orders or by a cheque from a building society, bank or solicitor. Cheques should be made payable to HM Paymaster General. Personal cheques will not be accepted.
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What are the implications / consequences of Insolvency / bankruptcy?
Bankruptcy involves several consequences or implications that you must know before filing. Following are some important factors:
- Your credit rating will be severely affected for as long as 6 to 10 years
- Your assets will be sold off to pay your creditors
- You may be subjected to an Income Payment Order (IPO) that would transfer a part of your income to your creditors.
- Your business may shut down
- Banks may close or freeze your account and forward the savings to the trustee.
- Without permission from the court you cannot take part in the formation or promotion of a limited company.
- Getting a mortgage after bankruptcy is not impossible but it will come at higher interest rate.
- You cannot become a Member of the Parliament, company director or hold certain offices like budgetary or finance or become a local authority or practice Law or Chartered Accountancy etc.
- Your personal life may be disturbed
- Gas or electricity suppliers may have some concerns and act accordingly
- If the Official Receiver finds that the bankrupt has been blameworthy or dishonest before or during the bankruptcy process, he or she may invoke Bankruptcy Restriction Order on the bankrupt.
People often opt for bankruptcy as a last resort to solve their financial crisis. You may also think about other alternatives like IVA to fight against this problem (IVA or Bankruptcy).
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