Personal Bankruptcy

Personal Bankruptcy

The aim of most creditors (the one’s you owe money to) is not to make an individual bankrupt. Most bankruptcies have little in the way of compensation for unsecured creditors. The government services are more likely to petition your bankruptcy than, say, a trader you owe money to. It is also common for an individual to start a bankruptcy petition themselves: out of desperation to avoid the hounding of some overzealous creditors.

The purpose of bankruptcy is to convert your possessions, and any wages you receive, into lump sum and instalment payments for creditors. A debtors purpose to apply for their own bankruptcy is to form a moratorium (a group of creditors) to agree part repayment of all outstanding debts, and when the agreed repayment has been met, to have a ‘clean slate’.

Individual creditors cannot take action against you. They must make a claim through the ‘trustee’ (the name of the person who controls a bankruptcy) or write off their debt. When appointed the trustee will advertise your demise in a number of newspapers to give all of your creditors a chance to make a claim against the bankruptcy. It is also the responsibility of the bankrupt to make an honest list of all creditors: as a bankruptcy is also a chance to start again the bankrupt should ensure every creditor is notified. Not that a creditor could make a claim against you after a bankruptcy, but it will get all your creditors of your back.

If you own your home you would be fortunate to keep it. You can keep household ‘essentials’: bed, fridge, heating appliances etc. But not, TV’s, video recorders, computers (unless used for work, or used to get work). All ‘tools of trade’ are protected, but will be scrutinised (a new transit van is not a necessity – buying a well used second hand van would be a likely suggestion from the bankruptcy trustee).

A bankruptcy will normally last until the third anniversary of the bankruptcy order. During this time you are not allowed to hold a public office, become a company director (or in all but name run a business) and you must not apply for credit over £250 without notifying the lender of your bankruptcy. Your credit file will show your bankruptcy for six years from the bankruptcy order.

There is some talk of allowing some bankrupts to become company directors in as little time as three months from the bankruptcy order. The basis of the issue is: should an entrepreneur who started a business, a sound and well run business, but lost control of the company’s survivability through bad luck, ‘just a few more sales’, ‘a bit more backing from the bank’ etc. be allowed to try again once all matters have been explained to, and sanctioned by the trustee? This option gets my vote.

New Personal Bankruptcy Law: April 1st 2004

What Does the New Bankruptcy Law Involve?

A new bankruptcy law – introduced by the Enterprise Act 2002 – will be introduced on 1st April 2004. The intention is to help remove the shame of bankruptcy from genuine cases and further penalise delinquent bankrupts.

The standard period of bankruptcy is to be reduced to 12 months – those that are already bankrupt after 1st April 2004 may also have their period reduced. If a bankrupt’s discharge date currently falls after 1st April 2005, they will be discharged on this date. In the meantime, if the discharge date is before 1st April 2005, it will remain the same.

However, the above law will not apply to bankrupts who have previously been bankrupt. Such bankrupts may apply to the Court to be discharged five years after the latest bankruptcy order.

The automatic restrictions imposed on ALL bankrupts are also to be removed. These restrictions can be imposed on delinquent bankrupts under a Bankruptcy Administration Order.

After a bankrupt has been discharged, they will be encouraged to start over again with the help of their creditors who may offer more flexible credit terms (through negotiation).

A county court judgement (CCJ) will remain registered for the period of six years regardless of whether the debt has been fully paid off within this period. However, a note will be added to the record if the debt is paid off. The CCJ will be aware to all creditors for the duration.

Why the Change?

The Government comments that “most creditors would run a mile from an individual who had been bankrupt in the past”. The new law will therefore make it easier for the “honest” bankrupt and will give them a chance to rebuild their business and run it successfully after being discharged. Once the bankrupt has been discharged, creditors will no longer be aware of the bankruptcy and will not “run that mile” when the individual seeks credit.

Click Here for FREE advice on Debt Management

or call FREE on: 0800 015 7557

ROK Connect Limited (Registered in England No.3573320) t/a Debt24

is Licensed under the UK Consumer Credit Act 1974 No. 500514 and registered with

the Data Protection Act 1998 No.PZ7082780

© ROK Connect Limited 1998 - 2004. All rights reserved.