These days, with the economy going through a rough patch, you will frequently hear about businesses going bankrupt. The reality is that even in good times there are always plenty of companies going into bankruptcy. You may have wondered though about what it exactly means to go bankrupt and how do you declare bankruptcy?
What is Bankruptcy?
The idea of bankruptcy actually originated in the UK and businesses have been able to declare that they are bankrupt since the middle of the sixteenth century. The original idea was that all the assets of a failing company could be seized in order to pay back money to those who had provided credit. Originally those declaring that they were bankrupt would be sent to prison if they could not pay back all the money they owned; thankfully these days the government is more reasonable. Those lending money to businesses always know that there is a risk of bankruptcy.
In modern times a business (or individual) declares bankruptcy when they are unable to pay back money that they owe to creditors. It is also possible for those who are owed money by a business to file a petition which leads to involuntary bankruptcy. Different parts of the UK have slightly different laws in regards to Bankruptcy; Scotland, Northern Ireland, and England & Wales have their own laws. Other parts of the world have their own specific bankruptcy laws.
The Pros and Cons of Bankruptcy
The main benefit of bankruptcy is that you will be freed from your debts and your assets will be divided among your creditors as fairly as possible. For many people going bankrupt can actually come as a relief; especially if they have been struggling for a long time to keep things together. After bankruptcy there will be some restrictions but it is possible to go on and start afresh.
The UK Insolvency Helpline lists a number of negative consequences of going bankrupt in the UK and these include;
-Â Â Â Difficulties getting credit in the future
-Â Â Â You can never again be the director of a company
-Â Â Â You will have lost control of your business assets when you went bankrupt
-Â Â Â You will be banned from certain professions including; charted accountant, lawyer, MP, and Justice of the Peace
-Â Â Â You will not be allowed to form another limited company with permission from the court.
How do you Declare Bankruptcy?
DirectGov offers useful advice for those considering bankruptcy. In the UK it is possible for any person to go to court and declare themselves bankrupt. The only way to become officially bankrupt is to file a petition. As already mentioned your creditors could cause you to go into involuntary bankruptcy if you own them more than £750 and they make a petition to the court. You will need to fill out a lot of forms and you also have to pay a fee to be able to do this; at the moment it costs about £500 to declare yourself bankrupt.
