What is bankruptcy and how does it occur?
Bankruptcy occurs when your debts reach a level that you are unable to pay. Regardless of the reasons for the growing debt, if you fail to honour your debt with one or more of your creditors, they are within their rights to apply to the courts to make you bankrupt. Creditors can be anyone you owe money to, such as HMRC, local councils, suppliers, or other companies and individuals.
If you’re made bankrupt, you become insolvent. In other words, you have more debt than you can repay within a reasonable time period. Bankruptcy is usually seen as the last resort and results in your assets being shared amongst those to whom you owe money – your creditors. The only upside of bankruptcy is that it offers you the chance to make a fresh start, free from debt. However, there are restrictions.
The two main ways in which bankruptcy can occur
What is the bankruptcy process?
If you fail to pay a debt or fall behind with repayments, your creditor(s) can decide to call in your debt by sending you a Statutory Demand. This written warning explains that, unless you repay your debt or present an acceptable repayment schedule, they will apply to the court for a bankruptcy order against you. You have 21 days in which to respond, after which a bankruptcy petition will be made against you The courts will then issue a bankruptcy order and you will lose control over your financial affairs.
The next step is for your bankruptcy order to be sent to the Official Receiver (a court official appointed to investigate your financial affairs), who takes control of your assets and property to administer payments to your creditors on your behalf. To help them get an accurate picture of your financial position, you must provide the Official Receiver with factual information about your finances along with a full list of all of your valuable assets. Bankruptcy is a serious matter and any incorrect or misleading information provided to the Official Receiver will be seen as non-cooperation and could lead to prosecution. From this point, you become legally bound by bankruptcy restrictions (we’ll cover these in more detail later). Although it can be overwhelming, we’re here to help you navigate the process as painlessly as possible.