A debtor will normally be bankrupt for one year. After this period they may be discharged.
What happens after the debtor is discharged?
Although the debtor is discharged, the administration of the bankruptcy continues until the trustee has done everything they need to and they are discharged from their duties. A debtor must continue to co-operate with the trustee until the trustee's discharge.
If the debtor is making a contribution they must continue to pay it to the trustee even after they have been discharged.
How does the trustee receive their discharge?
The trustee remains in office as long as necessary to conclude the administration of the debtor's estate. It is only when the trustee has dealt with all of the estate and accounted for the work they have done that they can seek their own discharge.
When the trustee has finished the administration, they must complete the sederunt book and, where the trustee was not the Accountant in Bankruptcy, send it to The Accountant.
They may, at the same time, apply to The Accountant for their own discharge. The Accountant in Bankruptcy will examine the sederunt book and, if there have been no objections, grant a certificate of discharge.
What happens to debts?
Once a debtor is discharged they no longer have a personal liability to repay the debts they had before they were made bankrupt, although there are exceptions to this.
A debtor is still personally responsible for:
- student loans
- fines, penalties, compensation and forfeiture orders imposed by any sheriff
- any liability incurred as a result of fraud or breach of trust on the debtors part
- any liability to forfeiture of bail
- any obligation to pay aliment
- any periodical payment ordered by the sheriff to the ex-spouse of the debtor
The pre-bankruptcy creditors, except those above, will not be able to take any legal action against the debtor to recover their debts. However, the debts still exist and the debtor is still responsible for paying any contributions agreed with the trustee.
A creditor can still take action against anyone else, for example the debtor's spouse, who had a joint liability for the debt.
A debtor is also still responsible for making payments to any secured creditor, for example, for the mortgage on their house.
A debtor is also responsible for repaying any debts which they have run up after they were made bankrupt along with any ongoing liabilities such as rent, council tax, gas, electricity and telephone bills.
What happens to ingathered funds?
Trustees will consider whether they are able to make any payments to creditors from the funds they gather in. They will invite claims and proof of the debt from all known creditors. Any payments made may not cover the full amount of the debt and can only be made once other costs, such as the trustee's fees and outlays, are met. The petitioning creditor is treated equally with other creditors although the costs of presenting the petition will be paid before other claims.
Claims must be made on a creditors claim form ( Form 11).
Dividend Payments to Creditors
Money paid to creditors is usually called a dividend and is expressed as the number of pence in the pound paid in respect of each creditor's claim. If a creditor has not submitted a claim form and proof of the debt they will not be included in this process.
When the trustee has collected enough money to pay a dividend, they will write to all creditors telling them how much to expect. The trustee should make every effort to ensure that the dividend is paid, there is no statutory requirement for the trustee to obtain a Form of Receipt from a creditor prior to payment of a dividend. In cases where the trustee is unable to pay the dividend to the creditors, he will lodge the funds with the Accountant in Bankruptcy in a special bank account called a consignation account. If you wish to claim any money in the consignation account, you must write to the Accountant in Bankruptcy. A charge is made for dealing with consigned money.
What happens to assets?
Bankruptcy does not end with the debtor's discharge. The trustee will still have a duty to sell any assets that are transferred to them.
Any assets aquired by the debtor for a period of 4 years from the date of sequestration will still require to be transferred to the trustee, regardless of whether the debtor has been discharged.
If the trustee recovers all the costs of the bankruptcy and pays all creditors in full, plus interest, and there is money or assets remaining, they will be returned to the debtor.
If the trustee decides that they do not intend to sell the debtor's house, either on the open market or privately, they will formally abandon it. Only then is the debtor entitled to sell it. The trustee must make a decision about any property within three years of the bankruptcy.