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Changes in the Bankruptcy Law

The Enterprise Act 2002 – Changes to the Law Governing Bankruptcy.
Bankruptcy – The Process
Bankruptcy – Advantages & Disadvantages

 

The Enterprise Act 2002 – Changes to the Law Governing Bankruptcy.

From the 1st April 2004 the law concerning bankruptcy has changed. The usual term for bankruptcy was previously 2-3 years. From 1st April 2004 most bankruptcies will be discharged within 12 months.

The purpose for the changes is so that those who have been unavoidably made bankrupt for genuine reasons are given a better chance to start again.

The position is different for an individual who has been an undischarged bankrupt more than once in the previous 15 years and who was still undischarged at the time the new law came into force. In this case, if the court has previously granted a discharge, that order will continue to determine that date of discharge. If no such order has been made the bankrupt will be discharged on 1 April 2009 (5 years on from 1 April 2004), or by a court order. People made bankrupt through a criminal bankruptcy can only be discharged by order of the court.

Individuals who go bankrupt for a second time after 1.04.04 will be discharged after one year the same as anyone else unless the Official Receiver decides to suspend the discharge date or apply for a Bankruptcy Restriction Order.

If you are currently bankrupt, and your bankruptcy term will go beyond 1st April 2005, you should be discharged one year from 1st April 2004. If you are currently bankrupt and your bankruptcy order finishes in less than 1 year from the 1st April 2004, the order will end as normal.

Other significant changes relate to the treatment of assets. Whereas previously there was no time limit, The Act sets a limit of 3 years on the period during which the trustee in bankruptcy can deal with a bankrupt's interest in a home which is the sole or principal home of the bankrupt, the bankrupt's spouse or a former spouse. After this period it will revert back to the bankrupt (i.e. it will no longer form part of the bankruptcy estate).

Harsher penalties will be imposed on those who are considered to have brought about their bankruptcy through reckless or irresponsible behaviour.

Bankruptcy Restriction Orders may be applied for by the Official Receiver for

  • failing to keep or produce records;
  • incurring a debt prior to the bankruptcy that the bankrupt had no reasonable expectation of being able to repay
  • carrying on any gambling or rash or hazardous speculation or unreasonable extravagance which may have materially contributed to or or increased the extent of the bankruptcy debt.

Restrictions after bankruptcy could last for a further two to fifteen years.

The cost of a petition to be made bankrupt has also changed from £390 rising to £460.

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Bankruptcy - The process

If a creditor wishes to make you bankrupt they must prove that you are unable to pay your debts or that you have no reasonable prospect of doing so.
Once the creditor has sent a petition to the court, a hearing takes place and an order is made if the court feels that this is the appropriate outcome.
An Official Receiver is then appointed. The Receiver will make an application to the court claiming any income that exceeds the amount you need to cover essential living costs for yourself and your family.
The Official Receiver can also claim your property and any other assets you have. After a minimum period of one year you will no longer be liable for the debts included within the bankruptcy.

 

Bankruptcy - The Advantages and Disadvantages

What are the advantages of bankruptcy?
For the person involved, bankruptcy provides relative peace of mind and possible automatic discharge after one year.
For the creditors, bankruptcy allows a full investigation of the debtor's affairs to be carried out.

What are the disadvantages of bankruptcy?

  • You lose control of your assets - this may include your house and vehicle.
  • You cannot obtain credit for more than £500 without permission from the lender.
  • Certain occupations and professions will not allow you to go bankrupt.
  • You cannot act as a company director.
  • You cannot take any part in the promotion, formation or management of a limited company without the permission of the court.
  • You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
  • Their may be restrictions on you practicing as a Chartered Accountant / Lawyer.
  • You may not act as a Justice of the Peace (JP) or school governor.
  • You may not become a Member of Parliament.
  • You may not become a member of the local authority.
  • Your credit is affected for many years after the annulment.
  • You may be publicly examined in court.

If you are considering bankruptcy and would like free advice and information on this and other options you can e-mail us or call 0800 716239.

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Changes to the Bankruptcy Legislation   |   Bankruptcy FAQ’s

For further advice on bankruptcy and the alternatives contact:-

Payplan - The Free Debt Advice Agency
Freephone 0800 917 7823
Email: help@payplan.com
Web: www.payplan.com

Citizens Advice Bureaux - www.nacab.org.uk

National Debtline - 0808 808 4000

or read more about other debt solutions that may be suitable for you:
IVAs - Informal Arrangements - Debt Management Plans

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