Bankruptcy

Bankruptcy is the administration of the affairs of an insolvent individual by a trustee in the interests of his creditors generally. Bankruptcy proceedings commence with the making of a bankruptcy order by the court on a petition presented by either a creditor who is owed more than £750 or by the individual who owes money to his/hers creditors.

Immediately on the making of the order the Official Receiver takes over control of the bankrupt's estate. If there are sufficient assets in the bankruptcy estate a trustee may be appointed; either by a meeting of creditors or by the Secretary of State for Trade & Industry. If there are insufficient assets the estate will remain with the Official Receiver.

Once a bankruptcy order is made the control of all a bankrupt's assets passes to a trustee whose role is to realise the assets and distribute the proceeds to creditors. Whilst the bankrupt loses any rights to his property certain items are excluded: such as any equipment or tools needed by him for use in his business, and basic domestic equipment such as clothes, bedding and furniture. The bankrupt may if he has disposable income over and above their reasonable domestic needs be required to enter into an income payments agreement or order for up to three years. The bankrupt is also subject to certain restrictions such as not acting as a company director (without leave of the court), not obtaining credit of more than £500 without declaring that he is an undischarged bankrupt, or carrying on business under a name that was different under which he was made bankrupt with declaring that he is an undischarged bankrupt.

The most emotional part of the procedure for an individual and his family is where there is a family home that is encapsulated in the bankruptcy estate. As a result of changes brought in by the Enterprise Act that came into force on 1 April 2004 the trustee has three years from the date of bankruptcy to deal with the beneficial interest or equity in the property or it reverts to the bankrupt. It is usual for a trustee to attempt to "sell" this interest to the bankrupt's family so as to minimise disruption to family life but if this is not possible then the property must be sold. The law discourages a trustee from taking possession proceedings to force a sale of the property for the first twelve months where hardship may be caused to the bankrupt's family.

The trustee may also claim, for as long as the bankrupt remains undischarged from his bankruptcy, any property acquired by the bankrupt after he has been made bankrupt i.e. lottery wins or assets left to him in a will. The discharge period is usually automatic after one year but it may be sooner if the Official Receiver has completed his enquiries sooner. This discharge means the bankrupt is released from his bankruptcy debts (except court fines and matrimonial debts) but it does not mean that any property is released from the estate, which the trustee will continue to deal with.

An undischarged bankrupt may propose an Individual Voluntary Arrangement with his creditors and if the proposal is accepted it will result in the annulment of the bankruptcy order.