Bankruptcy is a legal procedure which applies only to individuals. It provides debt relief for people whose circumstances are unlikely to change and who have no hope of paying off their debts within a reasonable time.
In some ways it is a protective remedy but it is also a punishment for those who individuals who incur debts.
To be made bankrupt, a court has to issue a bankruptcy order. This can occur in one of two ways:
You can apply for your own bankruptcy, or
If you owe £5000 or more, one of your creditors (the people you owe money to) can apply to make you bankrupt (following a statutory demand, unsatisfied judgment execution or if you have broken the terms of an IVA)
Bankruptcy will have a serious effect on your life and business as once an order is made:
- your assets belong to (“vest in”) your trustee and can be used to pay your debts.
- Your trustee will investigate your financial affairs for the 5 year period prior to the bankruptcy order
- you must follow certain rules called ‘bankruptcy restrictions’ which include not being able to act as a company director
- your name and details will be published on a bankruptcy register called the ‘Individual Insolvency Register’
- after 12 months you are usually discharged (freed) from your bankruptcy, provided you cooperate with your trustee