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What happens to your creditors?
If you are made bankrupt, you must not make payments direct to creditors. Creditors to whom you owe money when you are made bankrupt make a claim to your trustee. They should not ask you directly for payment; if you receive any requests, pass them immediately to your trustee to deal with and tell the creditor that you are bankrupt.
There are some very limited exceptions to this non-payment rule. The main ones are:
• secured creditors, such as creditors who have a mortgage or charge on your home Note: If mortgage payments are not made, the lender may sell your home.
• non-provable debts, such as court fines and other obligations arising under an order made in family proceedings or under a maintenance assessment made under the Child Support Act 1991. Non-provable debts are not included in the bankruptcy
• proceedings and you are still responsible for paying off such debts;
• benefit overpayments, where the benefit provider can recover any benefit overpayments from any further benefits you receive until you are discharged, when you will be released from these debts;
• Student loans, since 1 September 2004 all outstanding student loans cannot be claimed in bankruptcy. They remain the responsibility of the (former) student to repay within the terms of the loan arrangement.
• If you were made bankrupt before 1 September 2004 you may still have to repay your student loan. Clarification should be requested from the official receiver who is dealing with your affairs.
Suppliers of services to your home (gas, electricity, water and telephone) may not demand from you payment of bills in your name which are unpaid at the date of the bankruptcy order. But they may ask you for a deposit towards payment for further supplies or could arrange for the accounts to be transferred into the name of your spouse or partner.
You must pay continuing commitments such as rent (if you rent your home), together with any debts you incur after the bankruptcy.
The official receiver will contact your creditors to inform them of the bankruptcy. He may arrange a meeting of creditors for them to choose an insolvency practitioner to be the trustee. This happens if you appear to have significant assets.
The official receiver will prepare a report to your creditors on how much money (if any) will be shared out in the bankruptcy. Creditors then have to make their formal claims. The costs of the bankruptcy proceedings are paid first from the money that is available. The costs include fees that the official receiver or the insolvency practitioner charge for administering your case.
At least part of the claims from your employees (if any) may be preferential and are paid next, along with any other preferential debts. Finally, other creditors are paid, together with interest on all debts, as far as there are funds available from the sale of your assets. If there is a surplus, it will be returned to you. You would then be able to apply to the court to have your bankruptcy ‘annulled’ (cancelled).
When your trustee makes a payment to your creditors, he may place an advertisement about your bankruptcy in a newspaper asking creditors to submit their claims. Depending on how long it takes your trustee to deal with your assets, this advertisement may appear several years after the bankruptcy order.