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What is bankruptcy?

  • Bankruptcy is a process that allows an individual’s assets to be realised and funds distributed to their creditors.
  • This is a means of freeing an individual from overwhelming debts, subject to some restrictions.

How does an individual (the debtor) become bankrupt?

  • There are two means by which an individual can be made bankrupt, either on the petition of a creditor or on the debtor’s own petition.
    • The petition of a creditor;
      • If an individual owes a creditor at least £750 and the creditor has previously served a statutory demand to try to collect the money, they can present a creditors’ petition.
      • The petition will be served on the individual and will give notice of the hearing date.
      • The petition will be heard by the court who will make the bankruptcy order if they are satisfied that the debt is due and payable and the individual has been given sufficient time to repay the debt.
    • The petition of the debtor:
      • If an individual is of the opinion that they are no longer able to meet their liabilities or that their liabilities exceed their assets, they can present a debtor’s petition to the court.
      • The relevant forms can be collected from the court or downloaded from the Insolvency Service website.  The individual will complete these forms and present them to the court in person together with the appropriate fee.
  • Following the making of the bankruptcy order, the Official Receiver, who is a civil servant, is appointed as Trustee.
  • The Official Receiver will arrange a meeting with the individual to discuss their financial affairs, why it was necessary for them to be made bankrupt and to ascertain all the assets of the individual and all the people they owe money to.
  • If there are any assets in the bankruptcy estate it is probable that an IP in private practice will be appointed as Trustee

What are the duties of the Trustee?

  • To realise the assets of the individual.
  • To agree creditors’ claims and, if funds are available, make a distribution.
  • To act in the best interest of creditors at all times.
  • To investigate the affairs of the debtor and ensure that no bankruptcy offences have been committed.

What are the effects of the bankruptcy order on the individual?

  • No payments must be made to any one creditor in preference to others prior to or after the bankruptcy order.  Such payments can be overturned by the Trustee.
  • All debts outstanding as at the date of the bankruptcy order are included in the bankruptcy estate.  However, there are some non-provable debts which include student loans and obligations arising under family proceedings or the Child Support Acts and fines.
  • The debtor is no longer in control of their assets which now ‘vest’ in the bankruptcy estate.  There are certain exceptions to this including tools of trade and household items.
  • The debtor is bankrupt for a period of up to 12 months.
  • There are restrictions on an undischarged bankrupt which, if not followed, are criminal offences.  These are as follows:
    • Must not obtain credit of £500 or more without first disclosing you are bankrupt.
    • Must not carry on business in a different name from that in which you were made bankrupt without telling those people with whom you do business the name in which you were made bankrupt.
    • Must not be concerned (directly or indirectly) in promoting, forming or managing a limited company or acting as a director without the court’s permission.

What service we can provide in relation to bankruptcy?

  • Act as Trustee on the request of a creditor of the bankrupt.
  • Assist a creditor in presenting a petition against an individual.
  • Assist an individual in presenting their own petition.
  • Assist the bankrupt in dealing with the Trustee appointed on their bankruptcy estate.
Individual Voluntary Arrangement (IVA):

What is an IVA?:

  • This procedure enables an individual to put proposals to creditors to settle or compromise their debts through a formal arrangement which binds all creditors.

What is the purpose of an IVA?

  • The procedure is usually used when an individual has sufficient assets or income to pay creditors but needs additional time to do so.  Or if an individual works in a profession that does not allow for its members to become bankrupt.
  • Unlike bankruptcy, it allows the individual’s assets to remain within their control, although the arrangement itself is under the control of an IP who acts as Supervisor.

How does an individual enter into an IVA?

  • The individual will prepare a proposal to put to their creditors with the assistance of a licensed IP who is known as the nominee.
  • The proposal can make any number of suggestions to creditors.  However, in practice the individual must offer the creditors a better outcome than they would expect to receive if the individual were to be made bankrupt.
  • The nominee will report to the court as to whether in their opinion a meeting of creditors should be held in order to consider the proposals.
  • The proposals are sent to creditors for their consideration and a creditors meeting is called.
  • The creditors may approve, change or reject the proposal.  If 75% in value of the creditors voting at the meeting agree to the proposal, it is binding on all creditors.
  • If the proposal is approved, the nominee becomes the supervisor and implements the arrangement under the proposal.
  • If there is pressure from creditors or an impending petition, a moratorium can be sought at the outset which will protect the individual’s assets.

What are the duties of the Nominee/Supervisor?

  • Nominee
    • To assist the individual in preparing a viable proposal to put to their creditors.
    • To report to the court on the likelihood of the arrangement being successful.
    • To make an application for a moratorium if appropriate.
  • Supervisor
    • To ensure that the individual adheres to the terms of the arrangement
    • To agree creditors’ claims.
    • To collect in funds and distribute the same to creditors.
Informal arrangements / negotiations with creditors:
  • We can negotiate with your creditors to agree to accept a specified sum in full and final payment of their claim, without the need of entering into a formal arrangement like an IVA.
  • Whilst an IVA offers more protection to the individual, entering into a formal arrangement might not always be the best option for you.
  • This can be discussed further when we meet with you.