What is bankruptcy?

Bankruptcy is an insolvency process for individuals. Until 6 April 2016, unlike its corporate equivalent liquidation, only the court could make an individual bankrupt. However, on 6 April 2016, the bankruptcy applications regime came into force replacing debtors’ bankruptcy petitions (but not creditors’ petitions). Although the change did not affect debtors’ petitions presented prior to 6 April 2016, any individual who now wishes to be made bankrupt must make an online bankruptcy application which is determined by the adjudicator (an official within the Insolvency Service), and not by the court.

Effect Of Bankruptcy On A Bankrupt Following the making of a bankruptcy order, by the court or the adjudicator, the Official Receiver (OR) will request the bankrupt discloses details of all bank accounts in his name. If the debtor applied for their own bankruptcy order, they should have already disclosed these details in the process. Usually, the OR will then contact the relevant banks to: Inform them of the bankruptcy order. Request that no further transactions take place from the account without authorisation from the OR or any TiB that is appointed in due course. Arrange for the transfer of any funds belonging to the bankrupt into the bank account of the bankruptcy estate. Joint accounts The beneficial interest of a bankrupt in funds held in a joint account at the date of the bankruptcy order also comprise an asset in bankruptcy estate, which will vest in the bankrupt’s TiB. It is likely that access to any joint account will be disrupted while the OR or TiB investigates the bankrupt’s interest in the funds in any account. Future bank accounts There is no restriction on a debtor opening a new bank account while an undischarged bankrupt. However, some banks do not offer banking services to undischarged bankrupt. Those banks that do are unlikely to allow the bankrupt a cheque book or an overdraft facility, although they may permit the bankrupt to use a debit card on the account. Obtaining fresh credit is an offence for an undischarged bankrupt to obtain credit in excess of £500 (whether by himself or jointly with another), without first disclosing their status as an undischarged bankrupt. Obtaining credit includes taking possession of goods under a hire purchase agreement.

Effect On The Debtor’s Business An undischarged bankrupt may not: Act as a director of a company or be (directly or indirectly) involved in the management, promotion or formation of a company, unless the court grants permission to act in this capacity. Breach of this prohibition is a criminal offence Trade under a different name from the one in which the bankruptcy order was made, without disclosing to all those who trade with him under his new name that he is an undischarged bankrupt. Breach of this provision is a criminal offence. If the bankrupt is part of a partnership, the making of the bankruptcy order automatically dissolves that partnership in the absence of contrary provision in the partnership agreement. What if the debtor disputes debt? If the debtor disputes the validity of the debt they should consider:

• contacting the petitioning creditor, if time allows, to set out full details of the dispute and invite them to withdraw the petition. This will depend on how the debtor has responded to any demands for payment, by letter or statutory demand
• seeking clarification during the statutory demand process, where the debtor has an opportunity to apply to set aside the statutory demand, or if that is not possible
• filing and serving a notice of opposition to the bankruptcy petition, at least five business days before the hearing

The court can consider the disputed debt and determine if the sum claimed by the creditor constitutes a valid debt. The court:

• has power to deal with (and adjudicate on) any disputes that arise in respect of the debt
• may make directions for the filing and service of evidence to assist in substantiating the debt

Following the inquiry, if the court is not satisfied that a proper debt is due and owing it can dismiss the bankruptcy petition or set aside the statutory demand.

What Happens After The Bankruptcy Order Is Made Once a bankruptcy order has been made by the court:

• the court will draft the order, which will contain a notice for the bankrupt to attend the official receiver (OR) to answer questions concerning the events and circumstances giving rise to the bankruptcy order, and provide details of all assets/liabilities
• the OR must advertise the bankruptcy order in the London Gazette, and may cause notice of the order to be advertised in such other manner as the OR thinks fit, for example in a newspaper local to where the bankrupt resides
• the OR must also send notice of the bankruptcy order to the Chief Land Registrar, for registration.
• the OR must arrange for an entry to be made in the individual insolvency register; an online register containing details of bankruptcies that are either current or have ended in the last three months.

Bankruptcy Offences A bankrupt commits an offence if, with a view to defrauding their creditors or concealing their affairs, they:

• Do not disclose to the Official Receiver or Trustee in Bankruptcy full details of all the property that falls within their bankruptcy estate and any disposals made of, or from, that property.
• Conceal any property within their estate from the OR or TiB and fails to deliver up to the Official Receiver or TiB any property that falls within their bankruptcy estate.
• Remove any property with a value in excess of £1,000 from their bankruptcy estate after the presentation of the bankruptcy petition. (The £1,000 figure is set by the Insolvency Proceedings (Monetary Limits)
• Fail to account for, or satisfactorily explain, the loss of a substantial part of his property within the 12 months preceding their bankruptcy.
• Conceal, destroy or falsify any documents relating to their property and affairs
• Make a false, fraudulent or materially incomplete statement relating to their affairs or fail to inform the TiB of a false claim made against them by a purported creditor.
• Dispose of any property or interest in any property comprised in their bankruptcy estate, or has made such a disposal at any time in the five years preceding the bankruptcy.
• After the bankruptcy order, or at any time in the 12 months preceding it, leave, or prepare to leave, England and Wales with property valued in excess of £1,000, which falls within the bankruptcy estate.
• In the 12 months preceding the bankruptcy order, dispose of any property obtained on credit and for which they had not paid, other than by a disposal made in the ordinary course of business.