Definition

• Bankruptcy applies to an individual, rather than a company.
• It is a legal status that generally lasts for a year according to the notes.
• It can result in business debts being cancelled at the end of the bankruptcy period, although certain debts are excluded.
• Non-essential assets and excess income may be used to pay creditors.

Debts That May Not Be Automatically Cancelled

• Magistrates' court fines.
• Student loans.
• Secured loans and other secured debts.
• Debts resulting from personal injury or death.
• Maintenance and child-support payments.
• Certain benefits/tax-credit overpayments.

Becoming Bankrupt

An individual can be made bankrupt if they:

• Do not pay debts and owe creditors £5,000 or more.
• Break the terms of an Individual Voluntary Arrangement (IVA).
• Provide false information to obtain an IVA.
• An individual can also apply to make themselves bankrupt.

The notes state the process is normally completed by the adjudicator within 28 days, after which a bankruptcy order is issued.

Effects of Bankruptcy

• A bankrupt person cannot act as a director of a limited company.
• Personal assets may be lost.
• Credit rating may be affected.
• Bank account may be frozen.
• Payment arrangements with service providers may change.
• The Traffic Commissioner must be notified if an operator licence holder, director or partner is declared bankrupt.