The legal purpose of going bankrupt
The main aim of bankruptcy law in the UK is to give people a second chance. It gives honest debtors a clean start by wiping away most of their debts. It gives them the chance to repay their creditors as much as they can by selling assets such as your car or property including your home. The law is reasonable as you are allowed to keep certain assets that will help your situation such as your tools of the trade. It also excludes your spouse’s equity in the house. Bankruptcy is also only an option available to individuals or partnerships. Failing companies and other organisations cannot file for bankruptcy and instead have to go into administration or liquidation.
The Enterprise Act
The Enterprise Act of 2002 set out the details of bankruptcy law, however there were major changes made to the law in 2004. It is important to read up on the changes as you may have an outdated idea of the details of the law. One important change, for example, is that when you are made bankrupt your trustee is likely to try and sell your main residence, which will release any equity to help repay creditors. Before, the trustee had an infinite amount of time to do this but now they only have 3 years to do so. If your primary residence is not sold within 3 years it becomes your property once again. To familiarise yourself with the process of bankruptcy visit our section on the bankruptcy process.
The Enterprise Act also changed things so that the duration of being bankrupt has been diminished. Beforehand you would automatically be discharged from being bankrupt after 24 to 36 months, but now you are usually discharged after 12 months. If there are any areas of concern do not hesitate to visit other sections on the website dedicated to bankruptcy.
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