Personal Bankruptcy in England and Wales

Introduction - the basic principle of personal bankruptcy is that an individual who cannot pay his debts when they are due, and therefore formally agrees to surrender all his assets and income, in exchange for that debt being forgiven. It is a formal legal process, implemented through the court system and handled by an insolvency practitioner or an official receiver. They are known as the Trustee. For the business owners, personal bankruptcy can mean closure of his or her business. The bankruptcy process can be kick-started either by individual themselves or by one of their creditors. In England and Wales bankruptcy and an individual voluntary arrangement are the main types of personal insolvency. In Scotland, bankruptcy is referred to as Sequestration, whereas Protected Trust Deeds are similar to that of an IVA. The process of bankruptcy typically lasts for up to 12 months, and involve a detailed investigation by the trustee, into an individual's personal financial situation, to uncover all personal assets and income. The main aim of bankruptcy is too free a person from greater creditor pressure and to make sure that the individuals personal assets and incomes are redistributed to that persons creditors. Once the process completes, the individuals' 'slate is wiped clean' and they are free to make a fresh financial start.... The positive aspects of bankruptcy are the stress of pressure from creditors is legally removed. Creditors will not be take nay further court action once a Bankruptcy Order was in place. Following the completion of process, an individual can start again without the burden of debt.

The Bankruptcy Process - bankruptcy is the end of line in the insolvency process and its affects are felt throughout the life of a bankrupted individual. It is not to be entered into lightly or without seeking professional legal advice. It can be be quite complicated and stressful. it is not the only process available for indebted individuals.

Alternatives? - others alternatives include an informal agreement or debt management plan with creditors, or individual voluntary arrangement which is a formal negotiation with creditors or lastly administration order (for smaller debts).

Starting the Process - the individual (the debtor) can declare themselves bankrupt, voluntarily through a Debtor's Petition. The impacts of the order is the same regardless of whether an individual decides to declare themselves bankrupt or whether they are forced into a route by creditor. By petitioning for the individuals in bankruptcy they need to complete some forms, including The Petition (form 6.27 of the Insolvency Rules 1986) and The Statement of Affairs (6.28), both available from insolvency.gov.uk. Alternatively, a creditor may force someone into the process involuntarily, by issuing a Creditor's Petition, if they are owed more than Ł750. Lastly, the supervisor or anyone bound by an IVA can initiate the process. There are some fees involved in process including a court fee, a deposit towards the administrative process and lastly to swear the Statement of Affairs. A bankruptcy petition is normally heard in London's High Court order a county court near to where the individual lives. The individual must attend court proceedings or risk prosecution. It is a public exercise and confirmation will appear in public notifications such as newspapers and public records.

During the Process - either a licensed insolvency practitioner or the court-appointed official receiver will administer the bankruptcy order. Acting at the trustee, the receiver will investigate all aspects of an individual's finances by contacting their bank, local authority, courts, Land Registry, mortgage provider, insurance money and any other organisation that can shed light on the monies owed or assets obtained by individual. Once the information has been collected, the receiver is then in a position to report back the court at a future date. It would be unacceptable behaviour for an individual to sell assets just before entering the bankruptcy procedure in an attempt to deceive court process and make it look as if the individual did not possess any assets. An 'Income Payments Agreement' will be created by the trustee, laying out details of the an individuals repayments to creditors from any disposable income.

In cases, where an individual has acted completely dishonestly or recklessly with creditors monies, the court may impose a 'Bankruptcy Restriction Order' or Undertaking which imposes additional restrictions on the conduct of the individual concerned. During bankruptcy the individual is also obliged to inform the receiver of any changes in their circumstances. They must not attempt to obtain in excess of Ł500 credit without disclosing the bankruptcy order in the application process. Creditors are allowed to apply to the court for an 'Income Payments Order' under section 310 of the insolvency act 1986.... This has the effect of compelling the individual or their employer to divert cash payments from their regular income into the 'surplus' income for redistribution to the creditors. When implementing the order, the court considers the disposable income required by individual before calculating and any excess surplus that may be retrieved for the creditors.

Discharge of the Order - normally an individual is freed or 'discharged' from the bankruptcy order after one year. This period may vary depending upon the efficiency of the trustee and the court. If assets have been accumulated between the date the order was made and the discharge date, these must also be declared to the official receiver, and may be taken to repay creditors.

Impact of Personal Bankruptcy - virtually all of an individual assets (including their home, pension, life insurance, bank accounts, credit cards and inheritances) will become the property and in the control of the trustee. An individual will usually be able to keep items required in the day the course of work such as tools or a car. In addition, basic household necessities like clothing and some furniture may also be kept. Business owners will see their enterprise closed and formal company insolvency proceedings implemented.

Future Practical Restrictions - if an individual has gone bankrupt, their life will change in terms of their ability to make financial decisions. Firstly, it will become more difficult to obtain any credit so cost of credit of mortgages, loans and credit cards may rise. Secondly, an individual will lose control of their personal assets which may include property and investments. Thirdly, any professional individuals such as accountants or solicitors will not be able to practice. Bankrupted individuals may not work for the local council or become an MP. Lastly, they may not act as a company director or take part in a limited liability company or trade with other companies, without first declaring the bankruptcy record...

Bankruptcy Records - it is possible to view all personal bankruptcies have ended in the last three months via the iinsolvency.gov.uk website. Alternatively, paper based, public records are also visible at the official receivers offices. These will include an individual's name and address, date of birth, discharge date, occupation or trading name if appropriate. These records may be accessed by loan companies and other organisations, who needs undertake credit checks on individual in the future. Credit rating information may be obtained for up to six years and in some cases even up to 15 years if other restrictions apply. Credit referencing agencies also use postcode data to identify the addresses of individuals that have gone bankrupt in the past. This means that, applications for credit from that address will be flagged for scrutiny. An up to date credit referencing file can be obtained from either Callcredit plc, Equifax Plc or Experian Ltd. The information on the register does not include insolvent companies or disqualified directors. This type of business related data would normally be held at companies house in Cardiff and can be accessed online via companieshouse.gov.uk