01 Aug 2017

WHAT BEING BANKRUPT MEANS IN LAW

WHAT BEING BANKRUPT MEANS IN LAW

Once upon a time (time, time), in a village far far away called Bamboo, there lived a Mr Kalondo, a very rich man. Everyone admired him and wished they were him because for him, he never lacked.

He owned most of the big buildings, fancy cars and most of the land in Bamboo. All the pretty ladies got excited whenever his name was mentioned *wink wink *. With all the money, he even married a second and third wife, and had countless side dishes.  

Kalondo was the only one who knew his secret to the wealth. He borrowed lots of money to obtain the things that he had but the people in Bamboo would never know of the story.

But alas, years later, due to Kalondo’s luxurious living, the debts got overwhelming that none of his property would save him. In other words, Kalondo was bankrupt.

Ebiki?

What is Bankruptcy?

Under the law, Bankruptcy happens when a person is not able to pay up all his/her debts. For example, in this case, Kalondo borrowed money but failed to pay it.

How can a person be officially declared bankrupt (in legal terms, the word is Insolvent):

There are two ways in which a person can become bankrupt

  1. A person can ask Court to be declared Bankrupt: Under the law, Kalondo can petition court for bankruptcy. He can write to Court using a document called a Petition, telling Court that he/ she cannot pay the debts and if Court agrees, then that person can be declared bankrupt. In this case for example, Kalondo can ask Court to declare him bankrupt.
  2. His creditors can ask Court to declare Kalondo bankrupt: If Kalondo fails to pay, then his creditors (the people who he owes money “abamubanjja”) may petition court for bankruptcy and court may make a bankruptcy order in respect to the debtor (Kalondo).

NB: This can only happen when a statutory demand is made to the debtor but he/ she fails to pay.

When the petition for a bankruptcy order is made to court by either the debtor or the creditor, the court if it deems it fit grants the order.

What happens next:

When the bankruptcy order is given and Kalondo is declared bankrupt, Court will go ahead and appoint someone called an “official receiver” .

The official receiver is a person appointed by court to look after the property (estate) of the person declared bankrupt until the debts are paid off.

In this case for example, Kalondo had many buildings, land and fancy cars in Bamboo Village. All these properties shall be under the management of the appointed receiver until his debts are cleared.

What should Kalondo (debtor) do in case a petition for bankruptcy has been brought against him?

When someone has asked Court to declare Kalondo bankrupt, Court will ask Kalondo to bring to it what is called a statement of his affairs. This statement has things like Kalondo’s creditors (abamubanjja), debts etc.

After a bankruptcy order has been made, the court shall get a day on which public examination of the debtor (Kalondo) will be done. The debtor is examined on his or her affairs, dealings and property.