Bankruptcy
What is Bankruptcy?
Bankruptcy is the term describing the process used when an individual is unable to discharge their unsecured debts as they fall due.
The financial condition of bankruptcy is also referred to as being insolvent.
When a person enters bankruptcy, control of their financial affairs is passed to the Official Receiver, a official working on behalf of the Government's Insolvency Service.
The Official Receiver is tasked with dealing with the bankrupt's financial affairs, and ensuring that each of the bankrupt's creditors receives equal treatment and an equal share from a dividend or payout.
The bankruptcy process is a formal process, where a court order is made against the individual declaring themselves, or being declared, bankrupt.
In England, Wales and Northern Ireland, a Bankruptcy Order has a term of 12 months, after which the bankrupt is automatically discharged, though in some cases the Official Receiver can intervene and discharge a bankrupt earlier than this.
The Official Receiver also has the power to impose bankruptcy restrictions against the individual, by making the bankrupt subject to a Bankruptcy Restriction Order (BRO) if he believes that the bankrupt's behaviour could be considered dishonest or where the bankrupt's conduct has been culpable.
In such cases the restrictions held over a bankrupt can be imposed for up to a maximum of 15 years.
Typical examples where a BRO may be imposed would be in cases of gambling or credit obtained through fraud.
The Official Receiver will exercise his authority to maximise the financial return to creditors through the bankruptcy process.
He will use his powers to dispose of the bankrupt's assets where possible, and he has the power to impose an Income Payment Agreement (IPA) whenever the bankrupt's circumstances allow.
An IPA is an agreement whereby the bankrupt agrees to pay monthly contributions to the Trustee in bankruptcy for the duration of the IPA, which is normally 36 months.
The payments are set at what the Official Receiver believes to be an affordable level for the bankrupt to be able to maintain. IPA payments are paid to the Trustee in Bankruptcy, another appointed official in the bankruptcy process.
If the bankrupt cannot agree to the terms of an IPA then the Official Receiver can impose an Income Payment Order (IPO) whereby the bankrupt is ordered to make the payments.
Failure to comply with an IPO is a criminal offence.
Once a bankrupt has been discharged from his Bankruptcy Order, he is legally debt free and all previous unsecured debts are legally written off.
For further information on Bankruptcy please call an adviser on 0800 088 7502
