What happens in Bankruptcy?
Once an individual is made the subject of a Bankruptcy Order then an Official Receiver will be appointed. The Official Receiver (who is an Officer of the Court) will meet with you to discuss the reasons for your wanting to file for bankruptcy. The Official Receiver will also make an assessment of your assets and liabilities. Assuming you do have assets then a Trustee will be appointed, their responsibility will be to dispose of your assets and provide the proceeds from these to your creditors, e.g. your bank or building society and any other companies, individuals or organisations that have a recorded interest in your assets.
Once the creditors have been paid with whatever was remaining from your assets, even if there was not enough to pay the creditors in full, they will have no further claims against your future assets. After a period of 3 years (normally) from the date of filing the Bankruptcy Order you will be discharged from the bankruptcy – if you have been bankrupt before (within 15 years) then this period to discharge will extend to 5 years. However even once discharged from a bankruptcy this does not mean a “return to normality”.
Points to be aware of before filing for Bankruptcy
Bankruptcy is not something you should see as an easy option, it should be seen as a last resort. Not only could you lose your home, you could have significant problems in the future. Below is a summary of points you should be aware of:
1. The amount of debt that can be struck off by becoming bankrupt is limited. The bankruptcy hearing will ultimately determine the debts that remain.
2. If your debt includes a mortgage on your home then any mortgage charges can be collected AFTER you filed for bankruptcy – do not assume that your mortgage debt will be written off (discharged). Other debts that are not discharged include criminal fines and penalties; maintenance payments for child support; gambling debts; recent purchases of luxury goods.
3. After the date on which you filed for bankruptcy any new income (e.g. salary) or property acquired (excluding inheritances) will normally be yours and will not therefore be passed on to the creditors.
4. The bankruptcy period will normally last for 3 years (in some cases it is reduced to 2 years) unless you have been made bankrupt before, in which case the period is 5 years.
5. Your credit rating will be affected by the bankruptcy, this could lead to difficulties in obtaining credit in the future, and possibly increase the associated costs for loans and mortgages.
6. Your pension assets/income may be taken into account at the time bankruptcy is filed. This means that your future pension income could be adversely affected, professional advice should be sought from a legal expert and your pension company.
In summary filing for bankruptcy should really be seen as a last resort, if you feel it is your only option then seek professional advice from a legal expert or an organisation such as the Citizens Advice Bureau. Note that filing for bankruptcy will not stop repossession of your property (although it could be delayed for 1 year), but it will affect you for many years to come.
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