Bankruptcy Uk
In the United Kingdom (UK), Bankruptcy relates only to individuals and partnership firms. Companies and other corporations enter into a different legal insolvency procedures like liquidation, administration and administrative receivership. Bankruptcy in Scotland is referred to as Sequestration. A Trustee in bankruptcy must be either an Official Receiver (a civil servant) or a licensed insolvency practitioner.
According to the Enterprise Act 2002, a UK Bankruptcy will now normally last no longer than 12 months. It can even finish at an earlier state (less than 12 months).
It is expected that the number of bankruptcy cases would be increased due to liberalization of the UK Government.
The statistics show that in the period of Oct Dec 2005, there were about 20,500 individual insolvencies in England and Wales. This was an increase of 15.0% on the Jul Sep 2005 quarter.
Personal bankruptcy in the UK occurs when individuals can no longer manage their debts. The aim of bankruptcy is to convert debtors possessions, wages (if any received), etc. into lump sum and pay the creditors in installments.
Bankruptcy in the UK is a humiliating experience, as it is a very unfair means of dealing with a debt situation.
Responsibilities of a Bankrupt:
All bankrupts have certain responsibilities to their trustee during their bankruptcy. These include:
Supplying all relevant information to their trustee: When a bankruptcy order has been made, the Official Receiver must be provided with all information relating to financial affairs including a list of assets like property, pensions, insurance policies etc and the amounts of each debt with the names of the creditors they are owed to. All this information is to be provided within 21 days from the date when Bankruptcy order is made.
Informing the trustee / official receiver of any change of name, address, employment or income: if there is any change in name, address, employment address
Handing over the passport to trustee: When a Bankruptcy order is issued the debtors passport should be handed over to the official receiver. If the debtor faces an urgency to travel overseas, he must seek permission from the Federal Court for the same.
Disclosing bankrupt status if applying for credit: A credit of 250 or more from any person should not be obtained without first disclosing the fact that the debtor has been declared as a bankrupt.
Handing over all relevant books and documents: Any bank or the society account should not be used if the bankruptcy order has been raised. All these details should be handed over to the official receiver.
Not making any payments directly: A bankrupt should not make any direct payments to the creditors, instead they should inform the same first to the official receiver and do as agreed.
Effects / Implications of Bankruptcy:
The Effect on Current Assets: Assets such as home, savings and investments are at risk. However, if the creditors decide to exclude the current assets, the risk is minimized.
The Effect on Future Assets: Till the time the Bankruptcy is not dissolved, the creditors always consider the future assets for any increase in the value.
The Effect on Future Credit: The credit worthiness of a bankrupt is impaired. Whilst everything is back in place, a person who is bankrupt cannot obtain any credit. Even when the bankruptcy is expired obtaining credit is difficult.
The Effect on Reputation: The impact of bankruptcy on reputation is minimal, as they are just recorded and added to the credit file of a bankrupt. It remains on the file for at least 6 years.
Duration of Bankruptcy:
A first time bankrupt generally receive the discharge one year after the date of the bankruptcy order. However, there is a possibility that the discharge is less than one year. Discharge is not necessarily automatic and can be postponed by the Court.
Advantages of Bankruptcy:
For the Debtors:
It provides relative peace of mind and possible automatic discharge after one year (or even less in some cases).
It wipes the slate clean and gives a fresh start to the debtors.
Some of the bankrupt's property comes under the protection clause of the Act and cannot be taken away to pay debts, for example, all social security pensions and benefits are protected.
For the Creditors
It allows a full investigation of the debtor's affairs.
Creditors can claim tax relief against bad debts.
Disadvantages of Bankruptcy:
Bankruptcy is a very serious matter. Bankrupt declaration can have a disastrous long-term implication:
Any business owned by a bankrupt can be immediately closed.
A bankrupt looses assets including home, life insurance, etc.
All bank accounts, credit card accounts, etc. of a bankrupt can be closed.
A bankrupt may lose professional and business status.
A bankrupt cannot act as the director of a company.
He cannot take any part in the promotion or formation or management.
A bankrupt cannot practice as a Charted Accountant or Solicitor.
He cannot become a Member of Parliament or any local Authority.
He cannot become a Justice of the Peace (JP) or Governor of a School.
The bankruptcy order remains on the credit reference file for six years.
A bankrupt may not obtain credit of 250 or more without disclosing the bankrupt status.
He may be publicly examined in court.
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