Bankruptcy

Bankruptcy occurs when someone owes more money than they can repay when the debts fall due in accordance with the Insolvency Act. Assets are then turned over to a trustee and used to pay off the outstanding debts where possible. Once someone is declared bankrupt a supervisor is appointed to receive their earnings. The bankrupt person is then allocated an allowance to live on.

After a period (usually three years) the bankrupt person is declared as discharged from the bankruptcy status, with the outstanding debts treated as being paid. However credit reference agencies will probably reference negatively a former bankrupt for fifteen years after they have been discharged.

People who have been declared bankrupt usually do so because bankruptcy frees them from overwhelming debts, giving them a fresh start (subject to some restrictions), and makes sure their assets are evenly distributed amongst the creditors. Anyone can be declared bankrupt, either voluntarily or involuntarily, including individual members of a partnership.

Whilst there are numerous downsides to bankruptcy, including losing control of your assets, it can provide a relative peace of mind and possible automatic discharge after three years.