What is bankruptcy?
Bankruptcy is one route that you can take into consideration in order to deal with debts that you are unable to pay. The Bankruptcy process frees you from overwhelming debts so you can make a fresh start. Although you are subject to certain restrictions. It will also ensure that your assets are shared out fairly among your creditors.
How does bankruptcy work?
A court makes a bankruptcy order only after a bankruptcy petition has been presented. You can decide to self petition for your own bankruptcy. Or one or more of your unsecured creditors, who are owed at least £750, can petition for your bankruptcy.
How do I make myself Bankrupt?
Contact the court within the jurisdiction in which you live and request the petition forms. Once you have completed the forms, return them to the court with the fee payable. Above all take advice before you take what is a very major step.
Can my creditors make me bankrupt?
Yes. If you owe a creditor over £750 then they can petition for your Bankruptcy. Firstly a creditor would have to issue you with a Statutory Demand. The courts would then have to approve the petition just as they would if you petitioned for your own Bankruptcy.
How much does Bankruptcy cost?
Bankruptcy costs £495 per individual. This includes a court fee of £150 and the Official Receiver's fee of £345. This fee is payable when you take your petition to the court.
Will I have to attend Court?
Yes. You will have to present your petition in person at the court. The court will sometimes hear your petition immediately but they might need to arrange a hearing at a later date.
Will I still have to pay my creditors after I am bankrupt?
The Official Receiver will assess your incomings and outgoings and decide if you have to pay any money into the Bankruptcy pot. You may be asked to pay a regular amount for a maximum of three years. This is known as an Income Payment Agreement (IPA)/Income Payment Order (IPO). This is subject to review. If your circumstances change, so can the payments.
How long does bankruptcy last?
Bankruptcy normally lasts for twelve months. As long as you comply with the restrictions that were placed upon you. It may be possible to be discharged before twelve months, if the Official Receiver has finished looking into your affairs. If you are subject to a IPA/IPO then these payments will last for up to three years. Therefore they will continue even after discharge. The Bankruptcy will be recorded on your credit file for six years from the day on which the court made the Bankruptcy Order.
Are any debts excluded from Bankruptcy?
- Student loans are excluded from Bankruptcy. You will still be required to repay the loan and the arrangement will not in any way be affected by the Bankruptcy.
- Benefit overpayments can sometimes be recovered even after Bankruptcy.
- Court fines are excluded from Bankruptcy. You will be expected to pay the fine and adhere to payment arrangements made previously.
- Child Support payments and other family maintenance debts are not included in Bankruptcy.
Will I loose all of my possessions?
- The Official Receiver will only consider selling certain possessions. Unless their individual worth is greater than the cost of a reasonable replacement then the following items will not be taken.
- Clothing, bedding and furniture.
- Basic household goods and equipment.
- Tools of trade.
- Vehicles that are used personally in your employment.
- Non-essential items with a high resale value will be taken and sold.
- Essential items that can be sold and replaced with a cheaper alternative may be taken.
- If your car is valuable then it could be taken and sold. In some circumstances the Official Receiver may allow you to buy a cheaper vehicle with some of the profits.
What will happen to my home?
If you live in a mortgaged property or own your home outright then it may be sold. The Official Receiver has three years to deal with your property. In all circumstances you will be given sufficient notice & you will have time to find alternative accommodation.
The sale of a home during Bankruptcy proceedings is a complicated issue. You should take advice from a qualified advisor on this subject.
If I live in rented accommodation?
If you live in rented accommodation then your landlord will be made aware of your Bankruptcy. It is important to check your tenancy agreement and seek legal advice to find out how your tenancy might be affected by Bankruptcy.
Can I sell any assets?
No. The Official Receiver will conduct a thorough investigation of your finances. If you give away your assets or sell them for less than the true value then the Official Receiver will find out and a Bankruptcy Restriction Order (BRO) could be placed upon you for two to fifteen years. A BRO would make you subject to Bankruptcy restrictions for this extended period.
Will my Bankruptcy be advertised?
Your Bankruptcy will be reported in the legal notices of your local paper and in the London Gazette the week your bankruptcy is made.
What restrictions will be placed upon me?
You will not be allowed to obtain credit of more than £500 without telling the lender about your Bankruptcy. You need to be aware that overdrafts and cheques are forms of credit.
If you run a business then you must not trade under a different name without disclosing the name under which you went Bankrupt.
You cannot act as director of a limited company or be involved in forming, promoting or managing a limited company unless you obtain permission from the court.
You may not hold various public offices and cannot act as the trustee of a charity or pension fund.
Various other restrictions may apply.
How long will the restrictions last?
The restrictions will normally apply until you are discharged from Bankruptcy. You will usually be discharged within 12 months.
If you are subject to a Bankruptcy Restrictions Order (BRO), your bankruptcy could be extended for a further two to fifteen years.
A BRO will only apply if you have behaved in a dishonest or incorrect manner either before or during the Bankruptcy.
How will my employment be affected?
If you go Bankrupt then you will be automatically disqualified from certain professions...
- Member of the Law Society
- Estate Agent
- Insolvency Practitioner
- Stock Broker
- Pub Licensee
For some other professions, dismissal would be at your employer's discretion. Therefore it is important that you check your employment contract or consult your HR department or union.
How will my credit rating be affected?
Bankruptcy Orders are kept on your credit file for six years.
Bankruptcy can only be removed from your credit file if Bankruptcy Order has been annulled by the court.
What will happen my bank account?
When the Bankruptcy Order is made your bank account will be frozen. You will need to open a new basic bank account in order for your income to be paid in to.
If you experience difficulties opening a bank account...
- You can get benefits paid into a Post Office account.
- You can ask your employer to pay you by cheque.
- You could start saving with your local Credit Union.
Will my Bankruptcy affect anyone else?
If you have joint debts that are not paid in full when you go Bankrupt, the other person will still have to repay the outstanding balance.
If someone has acted as a guarantor for a debt included in your Bankruptcy, the guarantor is liable for the full amount.
A Bankruptcy Order is only listed on your individual credit file.
A Bankruptcy Order would affect future applications for joint credit.
How will bankruptcy affect my self-employed work?
If you are self-employed or run a business then you may be able to continue trading. As long as you fully comply with the Bankruptcy restrictions. You must not trade under a different name without disclosing the name under which you went Bankrupt You also must disclose your Bankruptcy before obtaining credit of £500 or more.
Are there any alternatives to Bankruptcy?
- Individual Voluntary Arrangements (IVA)
- Debt Management Plans (DMP)