In times of financial difficulties

Corporate Recovery and Insolvency terminology

Bankruptcy

If an individual is unable to pay his or her debts, they may choose to opt for bankruptcy. They may, however, be forced into bankruptcy if a creditor petitions the Court. A Trustee in bankruptcy is appointed over the bankrupt’s estate and is responsible for realising all the bankrupt’s assets for the benefit of the creditor.

Whilst an undischarged bankrupt, usually for a period of three years, [this will change in April 2004] an individual bankrupt cannot be a director of a Limited Liability Company and is prohibited from taking credit of more than £250,000 without advising the lender of the fact that he is a bankrupt. All his assets as at the date of bankruptcy vests in the Trustee, and it will be the Trustees job to sell them. This usually has a major impact on the matrimonial home in which the spouse may well have an interest.

For some, bankruptcy is a relatively painless way of wiping the slate clean and removing all of an individual’s debts, e.g. credit cards, but for many it is a disaster as they will be unable to earn a living in their chosen profession, e.g. accountants and solicitors. In such circumstances, bankruptcy is best avoided by an individual entering into an IVA.