Bankruptcy

The state of individuals who are unable to pay their debts and- against whom a bankruptcy order has been made by a court. The order deprives bankrupts of their property, which is then used to pay their debts. Bankruptcy proceedings are started by a bankruptcy petition. which may be presented to the court by (1) a creditor or creditors; (2) a person affected by a voluntary arrange­ment to pay debts set up by the debtor under the Insolvency Act (1986); (3) the Director of Public Prosecutions; or (4) the debtor. The grounds for a creditors’ petition are that the debtors appear to be unable to pay their debts or to have reasonable prospects of doing so, i.e. that the debtor has failed to make arrangements to pay a debt for _which a statutory demand has been made or that a judge­ment debt has not been satisfied. The debts must amount to at least £750. The grounds for a petition by a person bound by a voluntary arrangement are that the debtor has not complied with the terms of the arrangement or has withheld material information. The Director of Public Prosecutions may present a peti­tion in the public interest under the Powers of Criminal Courts Act (1973}. Debtors themselves may present a peti­tion on the grounds that they are unable to pay their debts. Once a petition has been presented, debtors may not dispose of any of their property. The court may halt any other legal proceedings against the debtor. An interim receiver may be appointed. This will usually be the *official receiver, who will take any necessary action to protect the debtor s estate. A *special manager may be appointed if the nature of the debtor’s business requires it. The court may make a bankruptcy order at its discretion. Once this has hap­pened, the debtor is an undischarged bankrupt who is deprived of the owner­ ship of all property and must assist the official receiver in listing it, recovering it, protecting ll. etc. The official receiver becomes manager and receiver of the estate until the appointment of a trustee in bankruptcy. The bankrupt must prepare a statement of affairs for the official receiver within 21 days of the bankruptcy order. A public examina­tion of the bankrupt may be ordered on the application of the”Official receiver or the creditors, in which the bankrupt will be required to answer questions about his or her affairs in court. Within 12 weeks the official receiver must decide whether to call a meeting of creditors to appoint a trustee in bankruptcy. The trustee’s duties are to collect, realize. and distribute the bank­rupt’s estate. The trustee may be appointed by the creditors, the court, or the Secretary of State and must be a qualified insolvency practitioner, or the official receiver. All the property of the bankrupt is available to pay the creditors, except for the following: equipment necessary for him or her to continue in employment or business. necessary domestic equipment; and income required for the reasonable dome tic needs of the bankrupt and his or her family. The court has discretion whether to order the sale of a house in which a spouse or children are living. All creditors must prove their claims to the trustees. Only unsecured claims can be proved in bank­ruptcy. When all expenses have been paid, the trustee will divide the estate. The Insolvency Act (1986) sets out the order in which creditors will be paid (see PREFERENTIAL CREDITOR). The bankruptcy may end automatically after two or three years, but in some cases, a court order is required. The bankrupt is discharged and receives a certificate of discharge from the court.