In January 2021 alone, there were 818 bankruptcies and 1,167 Debt Relief Orders (DRO) – an order that stops your creditors from taking legal action against you. Part of the fear of applying for bankruptcy is that most people don’t know what happens after bankruptcy has been filed.
WHAT IS BANKRUPTCY?
The legal definition for bankruptcy, according to HMRC, is ‘a legal procedure for a business or individual who are not able to pay their debts. A bankruptcy petition can be filed by either the debtor, which is more common, or on behalf of creditors – it is a different process – by an insolvency practitioner (IP) via the court.
Anyone who declares bankruptcy will have to follow the legal procedure in accordance with the Insolvency Act 1986. In addition, your name and the bankruptcy details will be published in the Individual Insolvency Register. Bankruptcy is only applicable to individuals. So, if you have personal debts and are an individual, a sole trader or in a partnership business, you can declare bankruptcy. However, if you are an insolvent limited company, it is a different liquidation process.
WHAT HAPPENS AFTER BANKRUPTCY?
Generally, you are released, or discharged, from legal restrictions after 12 months as well as from your debts, i.e. any debts remaining are written off. However, it is worth noting that any assets that were part of your estate whilst you were in a bankruptcy period can be used to pay any debts after the bankruptcy has been discharged.
Any bank accounts held in joint names will be closed or the bankrupt partner’s name will have to be removed from the business bank account. In addition, a minimum of 50% of any funds held in those bank accounts will have to be paid to the OR. Entering bankruptcy is a step that should never be taken lightly and only after getting professional advice, and careful consideration. If you are struggling with debts and are thinking about bankruptcy, stop; the first step is to seek professional advice as there may be other options available that are better suited to your circumstances. Our highly experienced professionals at Leading UK are on hand to help and advise on the process.
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