Licensed to act in the UK by the institute of Chartered Accountants in England & Wales
Laurence S Burt
A creditor, or the debtor himself, can petition for bankruptcy.
Upon hearing the petition, the court will appoint an insolvency practitioner (or the Official Receiver) as the Trustee in Bankruptcy who will be responsible for realising the bankrupt's assets for distribution to creditors.
All assets belonging to the debtor at the date of the bankruptcy order will be available to the trustee with the exception of tools of trade and basic household items. Any equity in the bankrupt's home, together with any income in excess of that needed for reasonable domestic needs will also form part of the bankruptcy estate. The Trustee in bankruptcy has 3 years in which to realise any equity in a bankrupt's home.
Providing that the bankrupt co-operates with the Trustee in bankruptcy automatic discharge from bankruptcy will occur after 12 months. However, some of the restrictions in place during the period of the bankruptcy may be continued following discharge depending upon the severity of the debts.
Individual Voluntary Arrangement ["IVA"]
An IVA is a formal agreement between the debtor and creditors for the repayment of outstanding debts.
An IVA typically lasts for a fixed period of between 3 and 5 years and is suitable for individuals who will contribute a set level of future earnings into a designated bank account for payment to creditors at an agreed date or individuals who need a moratorium to allow time to realise an asset (e.g a property). The proposal may also include the provision of third party monies or for the disposal of the debtor's assets.
To proceed, an IVA proposal will need to be accepted by a majority of the creditors but once in place it is binding on all creditors aware of the agreement.
In order to obtain approval for an IVA, it must be demonstrated to the creditors that such an option is more beneficial to them than bankruptcy.
Where a debtor enters into such an arrangement with his creditors and then does not adhere to the terms of the agreement, bankruptcy may follow.
© Ganley Burt 2005