Bankruptcy: An Introduction

The term bankruptcy comes with an immediate assumption of negative connotations

, particularly in the light of the proliferation of instances of individuals declaring themselves, or being declared bankrupt as a consequence of the recent recession.

Despite the indubitable downsides of declaring oneself bankrupt (which will be outlined later), bankruptcy does exist for a reason and in some cases is not just the best, but the only realistic course of action that can be taken.

When you are not able to keep up with repayments on loans or service debts as they fall due, the option of bankruptcy may have to be considered. By declaring yourself bankrupt, or being forced to follow bankruptcy proceedings, you lift the burden of overwhelming debts and have your assets shared out fairly amongst creditors. There are three routes through which a person can be made bankrupt: Voluntarily, Involuntarily, or at the bidding of a supervisor if bound by an IVA. Anybody can go bankrupt, even individual members of a business partnership.

As a rule, if bankruptcy can be avoided, then it should be. If an Individual Voluntary Arrangement procedure is a viable option then it is highly advisable to take this route, as although a first time bankrupt will often receive their discharge one year from the date of the bankruptcy order, an IVA puts you in more control of the situation and has fewer restrictions and implications. For the most part, bankruptcy has the following repercussions:

- Loss of right to act as a company director. Chartered Accountant, Lawyer, Justice of the peace, Member of Parliament or member of a local authority. Additionally, you are not permitted to be involved in the establishment or management of a limited company without the permission of the court.

- Loss of control over your assets.

- Inability to obtain credit in excess of 250 (unless with express permission from the lender).

- Credit is affected for years after the annulment of your bankruptcy order.

As these results of bankruptcy have a long-lasting impact, the decision to declare yourself bankrupt should not be taken lightly. As mentioned earlier, in some cases an IVA may be available as an alternative but if you do find yourself in a position of imposed or inevitable bankruptcy, it is always sensible to fully co-operate fully with the proceedings. Even if you refuse to acknowledge the proceedings: they will go ahead, so it is certainly beneficially to involve yourself actively from the outset to exercise some level of control over the situation. Furthermore, as a consequence of being made bankrupt it is worth bearing in mind that previous concerns over excess debt will be somewhat abated and discharge is possible in a year or even less in some circumstances.

by: Jamie Lyons

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