Bankruptcy Advice

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Bankruptcy is a formal insolvency route for individuals with serious debts that they cannot pay, especially if debts are particularly high (above £15,000) and / or income is low.

Like an IVA (Individual Voluntary Arrangement), bankruptcy is a form of insolvency – it’s a legal process that will share out any assets you may have fairly among your creditors, so you can write off your outstanding debt and make a fresh start.

Bankruptcy is a court order that you can apply for if you are in debt, or someone you owe money to can also apply to make you bankrupt even if you don’t want to be made bankrupt.  It is often the last resort and is usually applied when no meaningful alternative can be offered to creditors.

Once you have been made bankrupt, you don’t have to deal with the people you owe money to (your creditors). An official called the Official Receiver takes control of your money and property, and deals with your creditors.

When the bankruptcy order is over, you can make a fresh start and the money you owe is usually written off and in many cases, this can be after only one year. Creditors have to stop most types of court action to get their money back following a bankruptcy order.

As with any debt solution, bankruptcy has its pros and cons.

The Advantages of Bankruptcy

  • Pressure is taken off you because you don’t have to deal with your creditors
  • You are allowed to keep certain things, like household goods and a reasonable amount to live on
  • When the bankruptcy order is over, you can make a fresh start. In many cases, this can be after only one year
  • You know a date when you will be debt free
  • The money you owe can usually be written off

Things to bear in mind with Bankruptcy

  • It will cost you up to £600 to go bankrupt. It will be more if you use a solicitor
  • Whilst you are bankrupt, you can’t apply for more credit
  • Any valuable assets, including your home, may be sold so the funds can go towards repaying your creditors
  • Some professions don’t let people who have been made bankrupt carry on working e.g. solicitors, financial advisers etc.
  • If you own a business with assets, it is likely that the Official Receiver will close down the business and sell off the assets
  • If applicable, going bankrupt can affect your immigration status
  • You can’t keep your bankruptcy private. Your details will be listed in the Insolvency Register, which people can access on the internet and possibly in your local newspaper
  • If you did not co-operate with the Official Receiver, or you took on debts knowing that you had no hope of paying them back, you could have a Bankruptcy Restriction Order made against you. They can last for 15 years, and will restrict your financial options
  • Bankruptcy will affect your credit rating for 6 years
  • If you have a pension, part or all of your pension may be claimed by your trustee in bankruptcy, whether you are receiving it now or it is due in the future

Is Bankruptcy right for me?

Bankruptcy should always be considered at the last resort to your debt problems as it can have more severe implications and longer lasting effects than other debt solutions.  You should consider the following questions when deciding if bankruptcy might be right for you:

  • Do you have a limited disposable income?
  • Do you think your financial situation will improve in the short to medium term?
  • Can you repay your debt within a realistic timeframe
  • Do you own any significant assets e..g. a home, car, expensive items
  • Have you already considered other debt solutions such as a debt management plan, IVA or Debt Relief Order?

If you are faced with bankruptcy, you’ll need expert advice. You can speak directly with one of our experienced debt advisers by calling 01441 998 8874 or by emailing us here.

How to go Bankrupt

To go bankrupt, you must show that you are unable to pay your debts and then apply to court.  Before you do this, make sure you have enough cash for day-to-day expenses as once a bankruptcy order is made, your accounts will be frozen.

Briefly, to apply to court for bankruptcy you will need to take the following steps:

  • Find out which court to go to.  Visit the Her Majesty’s Courts Service (HMCS) website to find out which is your local small court to apply to
  • Pay costs and fees –  a non-refundable deposit of £450 is required plus up to an additional £150 depending on your circumstances
  • Complete a bankruptcy petition and statement of affairs, which are available from your local court
  • Swear an affidavit – this means that you swear to the court you have told the truth in the petition and statement of affairs forms

At the bankruptcy hearing, the court will decide either to reject your application, or to make a bankruptcy order. The court will reject your application if, for example, they think there is a better solution to your debt problem (such as an IVA or Debt Relief Order).

The Official Receiver will arrange an interview with you to check whether you have any items of value which can be sold to pay creditors. After your interview, the Official Receiver will tell your creditors about the bankruptcy, and send them a report with a summary of your financial situation. Your assets will be sold to pay off some or all of your debts. The costs of the bankruptcy are paid first from the money that is available. The costs include fees that the Official Receiver charges for dealing with your case.