The bankruptcy procedure

The bankruptcy procedure

Contents

If you want to get a bankruptcy order you have to follow a prescribed procedure. Once your bankruptcy order is in place, the money that becomes available from your bankrupt estate will be distributed amongst your creditors but only after the costs of the trustee in bankruptcy have been paid. If you want to have yourself declared bankrupt, you'll use the online application procedure discussed below.

Debtor's online bankruptcy application

Who can apply online?

If you are unable to pay your debts and want to have yourself declared bankrupt you will have to apply online for an adjudicator to grant a bankruptcy order.

Will the adjudicator have jurisdiction to consider your application?

The EC Regulation on insolvency aims to improve the efficiency of insolvency proceedings, such as bankruptcy proceedings, where there is a cross-border element. The result is that prominence will be given to insolvency proceedings started in the EU member state where you (as the debtor) have your centre of main interest (COMI). These will be the main proceedings and will have effect with regard to all your assets and creditors wherever situated (except for some restrictions applicable to territories where non-main proceedings have already been started). If there are insolvency proceedings against you at the same time in other EU states where you do not have your COMI those proceedings will only have local effect.

You can only apply online for a bankruptcy order if:

  • your COMI is in E&W; or
  • your COMI is not in E&W and also not in a member state of the EU which has adopted the EC Regulation, but then only if you are domiciled in England and Wales; or, at any time in the 3 years preceding the bankruptcy application, you were ordinarily resident, had a place of residence or carried on business in E&W.

What must be included in the application?

The bankruptcy application made online must include all the necessary details of your debts, liabilities, creditors and personal information. You must also confirm in the application that:

  • you are unable to pay your debts;
  • you are applying for a bankruptcy order;
  • you are not aware of any pending bankruptcy petitions against yourself;
  • whether any of the debts forming part of the current application is the subject of an existing bankruptcy order;
  • whether debt advice was obtained before you completed the online application;
  • you consent to verification checks, in the electoral registers, in individual insolvency registers, with the official receiver and with a credit reference agency, being made by the adjudicator;
  • provide all the prescribed information;
  • the application fee and the deposit have been paid in full; and,
  • the information given in the application is current and correct.

You have to authenticate the application by either giving confirmation of your identity in a way required by the adjudicator or otherwise by including a statement of the sender's identity and the adjudicator has no reason to doubt the truth of the statement. If the application is made in hard copy, then your signature will be proper authentication.

The prescribed information

Some of the comprehensive information that has to be included in the application is:

  • Your personal information;
  • Your occupation and employment details;
  • The full names and addresses of the creditors and details of the debts;
  • Details of any legal proceedings for divorce, separation or dissolution of civil partnership that you were involved in during the preceding 5 years;
  • Details of any other legal proceedings you are involved in at the time of the application;
  • Details of all your surplus income, assets and liabilities;
  • Details of any assets disposed of in the preceding 5 years;
  • Details of any bankruptcy order; debt relief order, individual voluntary arrangement or any other arrangement with creditors in the preceding 2 years;
  • Details of any solicitors (and the matters) acting for you or on your behalf in the preceding 5 years;
  • Details of any accountant, book keeper or financial adviser acting for you or on your behalf in the preceding 5 years;
  • Full details of your business affairs if you were a self-employed trader (including any partnership business) during the preceding 3 years. This includes details such as, the VAT number and whether money is owed to any employees;
  • Details of the cause of the insolvency;

The application fee and deposit

A deposit of £550 to cover part of the costs of the Official Receiver for administering your bankrupt estate and an adjudicator's administration fee of £130 must be paid. The payment can be made online either in a single payment or by instalments. The application will not be regarded as having been made unless these amounts have been paid in full.

Application procedure

The bankruptcy application must be made online, unless you have made specific arrangements with the adjudicator. The date of the application will be the date that the application is submitted to the adjudicator and it will be regarded as having been 'made' when the adjudicator acknowledges receipt of the application either electronically or in another way. However, an application will not be regarded as having been made unless the deposit and fees (see above) with regard thereto have been paid in full.

A bankruptcy application may not be withdrawn, but you must inform the adjudicator if after submitting the bankruptcy application you become able to pay your debts or a bankruptcy petition is presented to court by a creditor (someone you owe money to) for your bankruptcy.

How does the adjudicator decide the application?

An adjudicator has no discretion whether or not to grant a bankruptcy order. If the prescribed conditions are met, he is obliged to grant it and if it isn't he has to reject it. These requirements are that:

  • he has jurisdiction to consider the application;
  • you are unable to pay your debts;
  • no bankruptcy petition is pending for your bankruptcy; and,
  • no bankruptcy order has been made with regard to any of the debts listed in the application.

The adjudicator has to make his decision within 28 days from the date that the bankruptcy application is made. If the adjudicator asks for more information from you after 14 days from when the application was made, the 28 days will be extended by 14 days. If the adjudicator fails to make his decision within this period it will be regarded as a refusal to make the bankruptcy order.

What happens if the application is refused?

If the adjudicator refuses to make the bankruptcy order he will give you reasons for that decision. You may request the adjudicator, within 14 days from delivery of the notice of refusal, to review the decision. The adjudicator can't consider any new information during such review process. If the adjudicator confirms the refusal you may appeal to court within 28 days from the date that the confirmation of the refusal was delivered to you.

What happens if the bankruptcy order is granted?

If the adjudicator makes the bankruptcy order you will be given a hard copy thereof. You can also access the order via the online system. Once the order is made it will be passed to the Official Receiver (OR) who will contact you to advise the next steps.

Appointment and role of a trustee in bankruptcy

When the court makes a bankruptcy order, it will pass its files to the Official Receiver (OR), who is a person who works for the Insolvency Service. You have to give the OR a statement of affairs within 21 days of the bankruptcy order. The OR must, within 12 weeks of the bankruptcy order, decide whether to appoint themselves as trustee in bankruptcy (TIB) or instead call a meeting of creditors to enable them to appoint an insolvency practitioner of their choice as the TIB.

Ownership of all the assets in your 'bankrupt's estate' passes to (vests in) the TIB automatically on their appointment.

The main duty of the TIB is to convert the value of the assets in your estate to money. From these proceeds the TIB will first pay their own costs and expenses and then the balance available will be used to pay off as much of the 'bankruptcy debts' as possible. The TIB has wide powers to enable them to perform their duties.

Assets of your bankrupt estate

All assets, including your sole or principal residence, property acquired after the bankruptcy order and choses in action, in which you have an interest form part of your bankrupt estate except the following:

  • The tools of your trade (including vehicles);
  • Assets necessary for your and your family's basic domestic needs;
  • Certain types of tenancy;
  • Assets that you hold on trust for the benefit of others (i.e. assets which you are not entitled to benefit from themselves);
  • Compensation for injuries to your 'body, mind or character', which would include compensation for personal injury or for defamation;

Your main home

Special rules apply to your beneficial interest in your home or main home or in the home or main home of your present or former spouse or civil partner. This interest will automatically re-vest in you 3 years after the bankruptcy order unless by then the TIB has:

  • realised that interest;
  • applied for an order for sale or possession of the home;
  • applied for a charge against the property so that any proceeds of a future sale will first be used to pay the debts of your bankrupt estate; or,
  • agreed with you that your interest can be bought back by increasing the total bankruptcy debt.

Unless the court orders otherwise, the beneficial interest will also re-vest automatically in you if the TIB makes an unsuccessful application in respect of the home.

If the Official Receiver is the TIB they will deal with your home as follows:

  • For a period of 2 years and 3 months from the date of the bankruptcy order no steps will be taken to market your beneficial interest in your home, although the OR might decide to sell it if approached by a buyer and the offer is in the best interest of the creditors.
  • After this period of 2 years and 3 months the OR will only sell your beneficial interest in the home if that interest is valued at more than £1,000.

If there is sufficient equity and if the OR is not aware of any willing purchaser the OR can apply for a Secretary of State appointment of an insolvency practitioner as trustee of your bankrupt estate to deal further with the property.

If the value of the interest is more than a £1,000 but is insufficient to attract the appointment of an insolvency practitioner, the OR would invite offers from you or another connected person (for example your spouse) to buy the interest. If no offer is received that would allow transfer of the interest before expiry of the 3-year period, the OR could apply for a charging order against the property.

If the value of the interest is less than £1,000 the OR will take steps to re-vest the beneficial interest in you.

  • If you, while you are an undischarged bankrupt, become the beneficial owner of any assets (after-acquired assets), other than a principal residence for yourself or your spouse or partner, you have to inform the TIB within 21 days. The TIB can then serve a notice on you stating that the 'after-acquired' asset will be included in your bankrupt estate for the benefit of the creditors. The 'after-acquired' property will then vest in the TIB as soon as the notice is served on you.

However, any assets you acquire after discharge of the bankruptcy order, do not vest in the TIB, but belong to you.

Bankruptcy debts

To be recognised as a bankruptcy debt the claim must be payable in money (or money's worth) and arise from an obligation incurred by you prior to the date of your bankruptcy order. This means that the debt can either be due at the date of your bankruptcy order or it can fall due only after the bankruptcy order as long as the obligation which resulted in the debt occurred before the date of your bankruptcy order. If this is not the case the claim will not be counted as a bankruptcy debt.

You will be under an 'obligation' if, at the date of the bankruptcy order, there was a genuine possibility of a payment liability arising out of some form of legal relationship or duty.

The debt can be contractual, a tortious liability, a liability created by statute, etc. It doesn't matter whether the debt is certain or contingent and whether the amount is fixed or only capable of being determined by rules or opinion.

Any interest due on a bankruptcy debt with regard to the period prior to your bankruptcy order can be proved as part of the bankruptcy debt.

An exception to the above is that child support maintenance can't be a bankruptcy debt.

Proof of debt

To prove for his debt in bankruptcy your creditor will complete a Proof of Debt Form (Form 6.37). In this form the creditor will state how and when the debt was incurred, the total amount of the claim and the amount of any un-capitalised interest. The creditor can also attach to the form any documents in support of the claim.

After proofs of debt have been lodged with the TIB they will be available to be inspected by:

  • any creditor;
  • you (as the bankrupt); and,
  • any person acting on behalf of either of the above people.

If the TIB agrees thereto, a creditor that submitted a proof may at any time thereafter withdraw it or change the amount claimed. If the OR received any proofs before the TIB was appointed, he is to send them with an itemised list to the TIB. The same will happen should a new TIB be appointed.

The TIB can admit a proof either for the whole or part of the amount claimed. If he rejects all or part of the amount claimed, he has to provide the creditor that submitted the proof with written reasons for doing so. If this creditor is not satisfied with the reasons he may, within 21 days from the date of receiving the reasons, appeal to the court to have the decision reversed or varied. You and any other creditor may also appeal the decision of the TIB on any proof and may do so to the court within 21 days of becoming aware of the TIB's decision. If the TIB is of the opinion that a proof has been improperly admitted, he can apply to court to have it expunged or the amount reduced.

Powers of the TIB

The trustee in bankruptcy (TIB) has wide powers with regard to your bankrupt estate once it has automatically vested on their appointment.

  • The TIB can recover assets that you disposed of (without the prior consent of or later ratification by the court) in the period between applying for your bankruptcy and the appointment of the TIB, because such transactions are legally void.
  • The TIB can apply to court to make any person, who appears to have information about you or your dealings, affairs or property, appear before court to supply that information.
  • The TIB can undo transactions which you entered into while you were insolvent or that resulted in you becoming insolvent if that transaction involved:
    • an asset being disposed of at an undervalue, i.e. at a significantly lower value than it was worth, at any time within 5 years preceding the day of your bankruptcy application;
    • giving a preference to any associate at any time within 2 years preceding the day of your bankruptcy application;
    • giving a preference to any other person at any time within 6 months preceding the day of your bankruptcy application;
  • The TIB can apply to court to have any transaction, whereby credit at an extortionate rate was given to you within 3 years of the bankruptcy order, cancelled or varied.
  • The TIB can disclaim any onerous property found in your bankrupt estate, such as unprofitable contracts, unsaleable property or property that may give rise to a liability to pay money or perform onerous acts.
  • The TIB can recover pension contributions made by you if making those contributions prejudiced your creditors. It would be seen to prejudice your creditors if those contributions were made simply for the purpose of putting the assets beyond the reach of your creditors or if considering your circumstances, the contributions were of an excessive amount.
  • The TIB can apply to court while your bankruptcy order is in force for an income payments order (IPO) whereby you will be required to pay an amount of your income, but not so much as would leave you with less than is needed to meet your and your family's reasonable domestic needs, to the TIB for the benefit of the creditors. The TIB can also seek to enter into an income payments agreement (IPA) with you whereby you agree to pay over an amount of your income to the TIB. An IPA is usually an alternative to an IPO; for example, the TIB may first seek an IPA because it is a simpler procedure, but apply to court for an IPO if he cannot reach agreement with you. It is possible, although it is rare, for an IPO and an IPA to be in place at the same time. Both the IPA and IPO can remain in operation for a maximum of 3 years and therefore will usually continue after your discharge from the bankruptcy.

Obligations of and restrictions on the debtor

Responsibilities

Some of your responsibilities as a bankrupt include the following:

  • You must provide to the trustee all such information as to your affairs, attend on the trustee at such times and do all such other things as the TIB may require for purposes of carrying out his functions.
  • You must within 21 days disclose information of any property acquired or any increase in income received after the date of the bankruptcy order.
  • You must disclose to the OR or TIB to the best of your knowledge and belief all the property in your estate and details of any disposals of property that would have been part of your bankrupt estate.
  • You must hand over to the TIB all property falling in your bankrupt estate.
  • You must give to the TIB any property, books, papers or other records of which you have possession or control and of which the trustee is required to take possession.

Restrictions

Some of your restrictions include the following:

  • You can't during your bankruptcy or while a bankruptcy restrictions order is in place, get credit, (and this includes buying goods under a hire-purchase or conditional sale agreement), for more than £500 without disclosing that you are an undischarged bankrupt.
  • You may not, without the court's permission, act as a director of a company or be involved in the creation or management of a company while you are an undischarged bankrupt.
  • While you are an undischarged bankrupt you can't act as trustee of a Charity (unless given permission under the Company Directors Disqualification Act) or as a trustee of a Pension trust.
  • While you are an undischarged bankrupt you can't trade under a new name to the one you became bankrupt in unless you make all customers and suppliers aware of your bankruptcy.
  • You can't work as a solicitor without leave of the Solicitors Regulation Authority or as an insolvency practitioner while being subject to bankruptcy restrictions.
  • You can't be appointed as an attorney in a lasting power of attorney relating to the donor's property and financial affairs.

Bankruptcy restrictions order and bankruptcy restrictions undertaking

If the OR is of the opinion that you've been dishonest or is to blame for your bankruptcy debts the court can make a bankruptcy restrictions order (BRO) against you. This application would be made by the Secretary of State or the Official Receiver acting at the direction of the Secretary of State. The Secretary of State or Official Receiver may apply for a BRO at any time within a year of your bankruptcy order, but require the court's permission to make an application after that time.

The BRO effectively extends the period for which you will be subject to the above obligations and restrictions and can add further restrictions.

Some of your actions that could result in a BRO application are:

  • You give away assets or sell them for less than their true value;
  • You pay some creditors in preference to others;
  • You don't co-operate with the OR; or,
  • You behave in a fraudulent manner;

The BRO can continue for up to 15 years but not less than 2 years, as determined by the court. The BRO is not affected by your discharge from bankruptcy. You could agree to a bankruptcy restrictions undertaking (BRU), which has the same effect as a BRO, but avoids the need for a court application.