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Bankruptcy is an option that often has to be considered when you cannot pay your debts as and when they fall due. In general terms an individual can be made bankrupt in one of three ways.

• Voluntarily - By presenting your own Bankruptcy petition in Court.
• Involuntarily - By a creditor presenting a petition for your bankruptcy (£750 Minimum).
• By the Supervisor of any Individual Voluntary Arrangement which you have entered into.

A ‘Bankruptcy Order’ will be made by the Court at which the petition for Bankruptcy was presented.

If you are made Bankrupt, then all liabilities that you owe at the date of Bankruptcy will now fall into the Bankruptcy Estate.

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 is made is both difficult and expensive.

Commencement and Duration of Bankruptcy

Every bankrupt will be interviewed by the Official Receiver and enquiries made into the facts of their case. Where this initial enquiry shows that further investigation is unnecessary, the Official Receiver will report to the creditors that he/she proposes to give notice to the Court that the bankrupt receives an early discharge. Creditors then have 28 days in which to provide information showing why the bankrupt should not receive an early discharge. If there are no objections, the Official Receiver will file a notice of discharge at Court at the end of the 28 day period, and that will be the date of discharge. This could feasibly be after only 2/3 months. Where objections are received, the Official Receiver will delay filing notice of discharge until the objections have been dealt with. If the Official Receiver does not file a notice for early discharge, discharge will still happen automatically after 12 months, unless it is suspended (usually as a result of the non-cop-operation of the Bankrupt).

What are the main implications of bankruptcy?

• You lose control of your assets.
• You cannot obtain credit for over £250 without disclosing you are Bankrupt.
• You cannot act as a company director.
• You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
• You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
• Your credit record is affected for many years after the annulment.
• You may be publicly or privately examined in court.

The restrictions listed above will be applicable whilst you remain as an undischarged Bankrupt.

Bankruptcy Restriction Orders

For any bankrupt whose conduct is considered to be dishonest or otherwise culpable, the Official Receiver may impose Bankruptcy Restriction Orders (BRO). A BRO is a Court order made for between 2 and 15 years that places restrictions on the bankrupt. The restrictions relate to matters such as obtaining credit, disclosing the name in which a person was adjudged bankrupt when trading, and being unable to act as a director of a limited company.

Income Payments Orders (IPOs)

An IPO is an Income Payment Orders (IPOs), which is a Court Order instructing regular contributions to be made by a bankrupt from their income. Even though a bankrupt may obtain their discharge within 12 months, or less, an IPO will still last for three years, irrespective of discharge. To reduce the need for court involvement in non-contentious cases, a new administrative alternative has been introduced, Income Payments Agreements (IPAs). An IPA is a legally binding written agreement between the bankrupt and their trustee and, like an IPO, usually runs for three years.