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This is a shortened guide to this mechanism for a detailed guide click here or for a flowchart click here detailed guide click here or for a flowchart click here.

When a person is unable to pay off his or her debts this is the "last resort". The decision to go bankrupt must not be taken lightly. In our opinion you should explore ALL OTHER OPTIONS FIRST.

If bankruptcy is your preferred option please check that you have gone through our suggested decision-making process before reading on:

1. You have established that you are insolvent.

2. You have considered what your personal objectives are.

3. You have studied all available options.

4. You have decided to enter bankruptcy because your assets are outweighed by your liabilities and you're insolvent on the cashflow test.

Now the government has relaxed the bankruptcy rules to allow a bankrupt to be discharged (leave bankruptcy) after less than 12 months.

Bankruptcy: the Process.

There are three different ways that bankruptcy can be started under the current legislation.

1. A Debtor's petition to the court.

2. A Creditor's petition to the court.

3. The supervisor of an individual voluntary arrangement petitions the court.

A Debtor's Petition.

Find the address of your local County Court in the local telephone directory and visit the Court office to pick up a debtors petition pack. The Court may levy a fee for this but you will find that the court officials are very helpful and can often help you with the completion of the form. The form is necessarily complex so, if you require help, please contact the court official that gave you the document.

Once you've completed the form and supplied all information that it requires, take the completed file back to the court along with filing fee. This is known as a debtor's petition - basically you're asking the court to hold a hearing at which you will be made bankrupt. This is not as frightening or as daunting as it may sound and you'll find the Court is sympathetic to your situation.

A Creditor's Petition.

It is possible for a creditor to issue a petition for bankruptcy if the debt that they are seeking to recover has been proven. Often this requires a County Court Judgment or a Statutory Demand to have been served upon the debtor.

The creditor may have also tried to recover the funds due to him or her via a warrant, a bailiff or a Sheriff.

A Supervisor's Petition.

If you're in an IVA (individual voluntary arrangement) which is failing or under severe pressure please do not hesitate contact us. We may be able to assist by restructuring the IVA or indeed replacing the IVA, you will have of course have to demonstrate viability and a reason why the IVA has not been adhered to.

The supervisor will normally issue a petition to bankrupt you when the IVA has failed, just like a creditor's petition in many ways. This may be because you have failed to keep up with the regular payments prescribed by the IVA or you have you have been made redundant for example.

The Rules.

Once made bankrupt you may not be, without the permission of the court, a director of a limited company in the United Kingdom. To do so is a criminal offence. You may not act as a manager of a limited company in the United Kingdom or act in the formation of a company in the United Kingdom during the course of your bankruptcy.

During bankruptcy you may not obtain credit of greater than £500 it without disclosing that you are an undischarged bankrupt. To do so as a criminal offence.

You may not be a partner in a partnership. You must also comply with the trustee in bankruptcy, failure to do as he says can be a criminal offence.

Discharge.

Once the bankruptcy term is complete and you have conformed to the requirements of the trustee in bankruptcy; you are discharged from bankruptcy.

Although this means that most debts are written off some are not such as government fines, child-support etc as discussed previously. However, debts to the Inland Revenue, VAT and other trade creditors in the period up to your bankruptcy are written off.

It may be possible to start rebuilding your credit rating and to obtain a position of director or partner in a partnership for example. After say 12 months your personal emotional state, health and enthusiasm may have returned to normal. So it may be a new start.

Summary of advantages and disadvantages of bankruptcy:

Advantages

• Its quick and easy to do
  
• It's relatively inexpensive
  
• There is much less bankruptcy stigma than in the past.
  
• Can get rid of debt pressure quickly
  
• Discharged bankrupts can now get credit (not easy)
  
• Write off most unsecured debts

Disadvantages

• Some restrictions on employment status
  
• Cannot obtain credit over £500 whilst bankrupt (without disclosing)
  
• Cannot be a company director or partner in a partnership
  
• It is a public event - which can be advertised in local press
  
• All assets of any value are lost (usually)
  
• Secured debt, CSA and fines not included in bankruptcy
  
• It's a court process - that can be frightening
  
• You have to report to the Trustee in Bankruptcy
  

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