Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due. The bankruptcy process discharges the debtor from huge debts, but at the same time, the effects of bankruptcy persist for a long period of time.
A number of restrictions are imposed on the financial life of the bankrupt. There are also the psychological effects of bankruptcy.
The effects of bankruptcy cause major problems for the individual. Once a person is declared a bankrupt, the trustee takes possession of all personal assets. After selling the assets, the debts are cleared.
The individual is also forced to start anew, although they are subjected to a number of financial restrictions.
Effects of bankruptcy:
- You lose control of your assets.
- Obtain credit of �250 or more alone or jointly with another person without disclosing his or her bankruptcy
- You cannot act as a company director.
- You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
- You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
- You may not practice as a Charted Accountant / Lawyer.
- You may not act as a Justice of the peace (JP).
- You may not become a member of parliament.
- You may not become a member of the local authority.
- Your credit is affected for many years after the annulment.
- You may be publicly examined in court.
- Conduct business directly or indirectly in any name other than that in which he or she was made bankrupt
- Be involved directly or indirectly in promoting, forming or managing a company without the Court�s permission
A bankrupt may open a new bank or building society account but should disclose the fact that they are bankrupt. The bank or building society may then impose conditions and limitations. Overdraft facilities or chequebooks must not be obtained, as they are likely to be dishonored. The bankrupt must inform the Trustee of any funds available in the account, which exceed the normal living expenses, in order for the Trustee to distribute among the creditors.Bankruptcy will be registered with credit reference agencies and remain on the file for a minimum of six years. After this time also, previous history has to be declared, particularly when applying for a mortgage
How long does Bankruptcy last
A bankrupt may be discharged (freed from obligations under the bankruptcy order) after the one year. Discharge is not necessarily automatic and can be postponed by the Court. In addition, the discharge may not necessarily free that person from certain all liabilities and does not mean that unrealized assets will be safeguarded.
Discharge releases the bankrupt from most of the debts owed at the date of the bankruptcy order. Exceptions include debts arising from fraud, certain crimes and fines. Certain other debts such as damages or personal injury or money owed under family proceedings (such as maintenance) will be released only if the Court agrees.
If you have been declared bankrupt before, within the last 15 years, you will not be automatically discharged. You will only be able to apply to the Court for a discharge 5 years after the date of your current bankruptcy order; even then the Court may refuse or delay discharge.
The main changes of the new legislation (Enterprise Act 2002) are as follows:-
- In certain circumstances you may be discharged from bankruptcy after one year (previously the minimum was two year�s)
- A limit of three years may be placed on the Trustee�s rights to realize equity in your home. (Previously this was open ended).
- Harsher penalties imposed on those who are considered to have brought about their bankruptcy through reckless or irresponsible behavior. Restrictions after bankruptcy could last for a further two to fifteen years.
There are a number of social effects of bankruptcy. The individual declared as bankrupt losses his or her previous status in society. The bankrupt person has to inform about the bankruptcy each and every time he tries to get a job, start a business or apply for financial assistance. The psychological pain is an unfortunate effect of bankruptcy. From the beginning of the bankruptcy process until the end, the bankrupt person is subjected to mental pain, the feelings of guilt and failure, as well as tremendous stress. It is difficult to begin a new life under these conditions.
Advantages of bankruptcy:
- For the person involved, bankruptcy provides relative peace of mind and possible automatic discharge after one year (or less in some cases).
- For the creditors, bankruptcy allows a full investigation of the debtor’s affairs to be carried out.
Last Updated on : 10th July 2013