What is bankruptcy?
Bankruptcy is a way of dealing with debts that you cannot pay. The bankruptcy proceedings free you from paying your overwhelming debts and making a fresh start subject to certain restriction. The process also ensures that your assets are shared fairly with your creditors. It is not only individuals but also partnerships and companies that can go bankrupt.
The bankruptcy law in UK is governed by the Enterprise Act of 2002 and its amendments in 2004. The purpose of the UK bankruptcy law is to enable debtors to get a fresh lease in life and at the same time to ensure that creditors to some extent get their due. As per the law, first time bankrupts generally receive their discharge one year after the date of the bankruptcy order. However, in some cases, the discharge period can be less than a year also.
Keep in mind that bankruptcy has to be publically advertised. Sometimes, people do shy away from bankruptcy for the fear of social stigma. However, bankruptcy is no longer considered shameful and more so during the present financial crisis when even giants are crumbling. In most bankruptcy cases you can get away with paying only a small portion of your original debt and the remainder is wiped clean. This is the core reason why debtors prefer to go for bankruptcy.
This is not to say that bankruptcy is an easy way out for the debtor. If you are declared bankrupt, you will be subject to certain restrictions. If you find yourself in a difficult situation, you must first explore all possible alternatives, one such being the Individual Voluntary Agreement and another is Trust Deeds for Scottish residents.
Voluntary/Involuntary bankruptcy
When a debtor volunteers to file for bankruptcy in the court because he cannot discharge his debts, it is called voluntary bankruptcy. On the other hand when the creditors file a bankruptcy petition against a debtor, it is called involuntary bankruptcy.
Bankruptcy discharge
A legal elimination of debt through a bankruptcy order is called discharge. When a debt is discharged, it is no longer legally enforceable against the debtor. You are normally discharged from your debt around twelve months from the date you were declared bankrupt.
If the Official Receiver finishes off his investigations and presents his findings before the court even before the twelve months period, you may be discharged sooner than the set period.
The discharge can also be delayed if you do not cooperate with the Official Receiver.
Dischargeable
Dischargeable debts are those that can be eliminated through bankruptcy order. Certain debts such as recent taxes, debts incurred through fraud, family liabilities, alimony and support for children cannot be discharged.