Bankruptcy is a word everybody knows. The concept of bankruptcy and its general meaning are widely understood – Joe Bloggs has no money – but very few people truly understand how it works. Here’s a brief guide covering the most important points to remember when it comes to bankruptcy:

– Creditors and debtors

A fundamental point to understand is the role of creditors and debtors. Creditors are individuals or companies that are owed money by another. The person who is responsible for repaying the debt is called the debtor.

– Who can be declared bankrupt?

In the UK, only individuals can be declared bankrupt by a court order. Companies may instead go into administration or liquidation.

– Who can apply for bankruptcy proceedings?

A court must issue an order declaring that an individual is bankrupt. Creditors, or the debtor themselves, may apply to the court for a bankruptcy order to be issued.

– Creditor application for bankruptcy

An important first step in the bankruptcy process is for a creditor to personally serve a “statutory demand” on the debtor. The statutory demand gives the creditor 21 days to pay their debt. A debtor has 18 days from the date the demand was served to apply to the court for this to be “set aside”.

If the demanded sum, which must be more than £750, is still unpaid and the demand was not set aside by the court, the creditor may petition the court for a bankruptcy order.

– What happens after a bankruptcy order is made?

The debtor will not be able to act as a company director, even a new start up business or receive credit. A trustee of bankruptcy is appointed to investigate the debtor’s finances and will apply to the court for the sale of any assets that the debtor has an interest in, such as their car or home.

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