Bankruptcy is the state of an individual who is unable to pay his debts and against whom a bankruptcy order has been made by a court.
The term originates from the money lenders of Italy whom, when unable to continue business had their money lending bench (known as a bank in English) broken up.
The order deprives the bankrupt of his property, which is then used to pay his debts.
Bankruptcy proceedings are started by a petition, which may be presented to the court by:
a creditor or creditors;
a person affected by a voluntary arrangement to pay debts set up by the debtor under the Insolvency Act (1986)
the Director of Public Prosecutions
the debtor himself. The grounds for a creditors' petition are that the debtor appears to be unable to pay his debts or to have reasonable prospects of doing so, i.e. that the debtor has failed to make arrangements to pay a debt for which a statutory demand has been made or that a judgment debt has not been satisfied.
The debts must amount to at least 750 pounds. The grounds for a petition by a person bound by a voluntary arrangement are that the debtor has not complied with the terms of the arrangement or has withheld material information. The Director of Public Prosecutions may present a petition in the public interest under the Powers of Criminal Courts Act (1973). The debtor himself may present a petition on the ground that he is unable to pay his debts. Once a petition has been presented, the debtor may not dispose of any of his property. The court may halt any other legal proceedings against the debtor. An interim receiver may be appointed. This will usually be the official receiver, who will take any necessary action to protect the debtor' s estate. A special manager may be appointed if the nature of the debtor's business requires it. The court may make a bankruptcy order at its discretion. Once this has happened, the debtor is an undischarged bankrupt. He is deprived of the ownership of all his property and must assist the official receiver in listing it, recovering it, protecting it, etc. The official receiver becomes manager and receiver of the estate until the appointment of a trustee in bankruptcy.
The bankrupt must prepare a statement of his affairs for the official receiver within 21 days of the bankruptcy order. A public examination of the bankrupt may be ordered on the application of the official receiver or the creditors, in which the bankrupt will be required to answer questions about his affairs in court. Within twelve weeks the official receiver must decide whether to call a meeting of creditors to appoint a trustee in bankruptcy. The trustee's duties are to collect, realize, and distribute the bankrupt's estate. He may be appointed by the creditors, the court, or the Secretary of State; he must be a qualified insolvency practitioner, or the official receiver. All the property of the bankrupt is available to pay the creditors, except for the following: equipment necessary to him in his employment or business, necessary domestic equipment; and income required for the reasonable domestic needs of the bankrupt and his family. The court has discretion whether to order sale of a house in which a spouse or children are living. All creditors must prove their claims to the trustees.
Only unsecured claims can be proved in bankruptcy. When all expenses have been paid, the trustee will divide the estate. The Insolvency Act (1986) sets out the order in which creditors will be paid. The bankruptcy may end automatically after two or three years, but in some cases a court order is required. The bankrupt is discharged and receives a certificate of discharge from the court. Research Bankruptcy
The Probert Encyclopaedia was designed, edited and programed by
Matt and Leela Probert
Abbreviations
Money
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