Bankruptcy
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Bankruptcy occurs when a person is insolvent and unable to pay his creditors. In such cases, all of his assets are to be sold, and the proceeds are used to pay off the debts owed to creditors. If a judgment debt exceeds £750, the judgment creditor (the party to whom money is owed) has the option of filing a bankruptcy petition with the court to have the judgment debtor (the person who owes money) declared bankrupt. However, if the creditor has previously filed a charging order (a legal order to secure the debt against the debtor's property), he cannot petition for bankruptcy because he becomes a secured creditor. A secured creditor, unlike an unsecured one, cannot petition for bankruptcy unless he relinquishes his secured status.
Procedure for Declaring Bankruptcy
If a judgment remains unpaid (either in whole or in part), the creditor must first serve the debtor with a statutory demand, a formal request for payment. If the debtor fails to pay or respond, the creditor can submit a bankruptcy petition three weeks after the statutory demand is served. An affidavit confirming the petition's accuracy must accompany the submission. The court then publishes the petition and sets a date and location for the hearing. The debtor must be served with the petition at least 14 days before the hearing date.
At the hearing, the judgment creditor must prove that the debt remains outstanding. If the court is satisfied, it will typically issue a bankruptcy order, transferring all of the debtor's assets to a trustee in bankruptcy. However, the court may choose to reject, delay, or postpone the petition if there are compelling reasons.
Advantages of Making a Debtor Bankrupt
For creditors, making someone bankrupt can offer several advantages. Firstly, bankruptcy proceedings provide a structured and orderly way for the debtor to repay his debts, removing the need for creditors to negotiate individually or take separate legal actions. Secondly, once bankruptcy is declared, the debtor's assets are frozen, preventing him from dissipating his assets or transferring them elsewhere to avoid paying his creditors. This ensures a fair distribution of the debtor's assets among all creditors. Finally, after bankruptcy proceedings are completed, the debtor is generally discharged from his debts, allowing both the debtor and creditors to move forward.
Effect on a Debtor if Declared Bankrupt
Bankruptcy can have several serious consequences for the individual declared bankrupt. Firstly, it severely damages the person's credit rating, making it challenging to obtain credit or loans in the future. The bankrupt individual may also lose control over his assets, including his home, vehicle, and bank accounts, as these may be sold off to pay the creditors. Furthermore, bankruptcy can negatively impact the person's employment prospects, as certain professions and positions require individuals to maintain a clean financial record. Beyond these financial and professional consequences, the stigma associated with bankruptcy can also be deeply personal, as it may be perceived as a sign of financial failure, leading to social and emotional difficulties for the bankrupt person.
Procedure for Declaring Bankruptcy
If a judgment remains unpaid (either in whole or in part), the creditor must first serve the debtor with a statutory demand, a formal request for payment. If the debtor fails to pay or respond, the creditor can submit a bankruptcy petition three weeks after the statutory demand is served. An affidavit confirming the petition's accuracy must accompany the submission. The court then publishes the petition and sets a date and location for the hearing. The debtor must be served with the petition at least 14 days before the hearing date.
At the hearing, the judgment creditor must prove that the debt remains outstanding. If the court is satisfied, it will typically issue a bankruptcy order, transferring all of the debtor's assets to a trustee in bankruptcy. However, the court may choose to reject, delay, or postpone the petition if there are compelling reasons.
Advantages of Making a Debtor Bankrupt
For creditors, making someone bankrupt can offer several advantages. Firstly, bankruptcy proceedings provide a structured and orderly way for the debtor to repay his debts, removing the need for creditors to negotiate individually or take separate legal actions. Secondly, once bankruptcy is declared, the debtor's assets are frozen, preventing him from dissipating his assets or transferring them elsewhere to avoid paying his creditors. This ensures a fair distribution of the debtor's assets among all creditors. Finally, after bankruptcy proceedings are completed, the debtor is generally discharged from his debts, allowing both the debtor and creditors to move forward.
Effect on a Debtor if Declared Bankrupt
Bankruptcy can have several serious consequences for the individual declared bankrupt. Firstly, it severely damages the person's credit rating, making it challenging to obtain credit or loans in the future. The bankrupt individual may also lose control over his assets, including his home, vehicle, and bank accounts, as these may be sold off to pay the creditors. Furthermore, bankruptcy can negatively impact the person's employment prospects, as certain professions and positions require individuals to maintain a clean financial record. Beyond these financial and professional consequences, the stigma associated with bankruptcy can also be deeply personal, as it may be perceived as a sign of financial failure, leading to social and emotional difficulties for the bankrupt person.
