Bankruptcy – The bankruptcy process

Last Updated
December 23, 2009

Bankruptcy is a way of dealing with personal debts that you cannot pay when it becomes due. Whilst you are bankrupt your non-essential assets (property and possessions) and excess income are used to pay off your debts. After a period of time (usually one year) most or all of your outstanding debts are “discharged” (written [...]

Bankruptcy is a way of dealing with personal debts that you cannot pay when it becomes due.

Whilst you are bankrupt your non-essential assets (property and possessions) and excess income are used to pay off your debts. After a period of time (usually one year) most or all of your outstanding debts are “discharged” (written off) and you can make a fresh start.

Before being declared bankrupt

A creditor must send you a “ statutory demand” requiring you to:

  • pay the amount stated on the demand
  • secure the debt against any property you own
  • pay the debt in a way that is satisfactory to the creditors, such as by instalments.

The creditor can apply for a bankruptcy order (petition for your bankruptcy) through the court 21 days after sending you the statutory demand.

(In certain circumstances, you can apply to have the statutory demand set aside, for example, if your debt is below £750.)

Court hearing

At the hearing, the court can respond to the bankruptcy petition in four ways.

  • They can stay the proceedings. This is a way of delaying the bankruptcy petition because further information is needed before the court makes its decision.
  • They can dismiss the petition. This is often the case when the court thins an administration order would be more appropriate.
  • They can appoint an Insolvency Practitioner if they think an individual voluntary arrangement would be more appropriate.
  • Make a bankruptcy order. You will be bankrupt immediately.

Trustee’s Duties

A trustee is appointed to your bankruptcy case and they take control of your assets. Your trustee will either be an Official Receiver or an Insolvency Practitioner

The trustee is responsible for investigating your financial affairs for the time before and during your bankruptcy. They are also responsible for the disposing of your assets and making payments to your creditors.

(All payments to your creditors are now the responsibility of the trustee and you must not make payments directly to your creditors.)

Your trustee publishes your bankruptcy in the Gazette (the official newspaper of record) and in a newspaper in the area where the company has its principal place of business.

During the bankruptcy process

  • You must cooperate fully with the bankruptcy proceedings, even if you dispute them.
  • You must give your trustee details of your finances, assets and creditors and allow your trustee full control over your assets – although you are allowed to keep household goods and a reasonable amount to live on.
  • You might have to sign an “income payments agreement” to pay fixed monthly instalments from your income (earnings) for three years.
  • You must tell your trustee about any new assets or income during your bankruptcy.
  • You will still have to pay “ongoing commitments”, such as rent or debts incurred after you become bankrupt.
  • You may also have to attend Court to explain why you are in debt. If you do not cooperate, you could be arrested.

Ending the bankruptcy process

  • Bankruptcy normally lasts for one year, although it could happen earlier if you have a certificate of summary administration or if you cooperate fully with your trustee.
  • If you have behaved irresponsibly or not cooperated since the bankruptcy order was imposed, your bankruptcy could last longer than one year.
  • Under certain circumstances, you could have a bankruptcy restriction order made against you, which can last for 15 years and restrict your financial affairs.
  • When your bankruptcy ends, At the end of the bankruptcy period, most of your debts are “discharged” (written off).

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