Main Effects of Bankruptcy
Bankruptcy is a status given to an individual who cannot repay outstanding monies to their creditors. The debtor can initiate a voluntary bankruptcy by filing a petition to the court resulting in bankruptcy order being imposed and relieving them of financial commitments. however, there are serious consequences to this. In addition, the other method is compulsory bankruptcy caused by a creditor’s petition.
Consequently, they lose complete control of their assets and accounts. A Bankruptcy Trustee is appointed to investigate, evaluate and administer the debtor’s assets and financial affairs in order to protect the assets for the benefit of the creditors. The Trustee will inform the creditors who will then submit a report to the Trustee showing monies owed. It is the responsibility of the Trustee to pay off debts partially if not possibly fully. To aid them in doing this, the powers granted to them are wide, they include; to sell or distribute the assets, continue the course of any business the debtor has and to take legal action as well defend the debtor against legal proceedings.
Responsibilities and Restrictions of the Debtor
As a result of bankruptcy, all the debtors’ financial affairs are controlled by the Trustee, including their home. There are certain requirements therefore that the debtor has to meet. The debtor must cooperate and assist the Trustee in carrying out their duties, whether that is declaring all assets, insurance policies, income or handing over bank cards.
The debtor must not during this period directly pay creditors but may continue to make payments to anything that is not listed on the bankruptcy order. Other restrictions include:
Borrowing money of £250 or more jointly or alone without disclosing their status of bankruptcy;
Conduct business or hold the position of director of a company in another name not stated in the bankruptcy order and
Be involved in the management, promotion or formation of a company without the consent of the Court;
Or hold a position in public office such as working for the Financial Services Authority or trustee of a charity.
These restraints are of course only active until the bankruptcy order has been discharged.
Length of Bankruptcy
A debtor is declared bankrupt for one year, however, if the courts deem it appropriate in the circumstances, this can be extended. It is to be noted that discharge from bankruptcy does not necessarily mean all liabilities have been dealt with or that any assets still in the debtor's name protected. It merely releases the debtor from the burden of paying off most debts at the date of the order. If the court agrees, the following debts may be discharged; personal injury claims made against the debtor or money owed due to family proceedings such as maintenance. Fines, debts due to fraud or other crimes will not be released.
Once discharged from the bankruptcy order the debtor is also released from the restrictions that were imposed upon them. Assets that were declared on the order cannot be taken back, however, any excess can be. The assets would continue to stay with Trustee for the benefit of the creditors. Even after release from bankruptcy, the Trustee may remain in their position if it is so required, for instance, a creditors’ still have claims and monies to be realized. Similarly, the Trustee may cease to act before the debtor has been discharged.
Other Effect of Bankruptcy
Bankruptcy is always registered and advertised and therefore it does affect the debtor’s credit rating. Credit reference agencies would subsequently update their files. Records of a debtor’s bankruptcy are kept for six years. Banks are entitled to refuse a debtor from opening new bank accounts and can freeze existing ones. Further, the debtor will find it difficult to obtains loans from any lender.