Bankruptcy

 

Bankruptcy is a debt solution for people who are unable to pay their unsecured debt each month. People entering bankruptcy will have more unsecured debt than equity in any other assets (such as a house or shares in a company). Sometimes an IVA is a suitable solution for people with debt problems and considering bankruptcy, however should the IVA fail then bankruptcy may be applicable.

Bankruptcy is only available for people who live in England, Wales and Northern Ireland. The Scottish equivalent is sequestration.

Bankruptcy Advice

You can petition for your own bankruptcy or if one of your unsecured creditors is owed at least £750 they can petition for your bankruptcy. In April 2009 the Debt Relief Order (DRO) was made available as a new route into bankruptcy. The DRO is an easier and cheaper route to become bankrupt but only people who meet the qualifying criteria can enter the solution. If you owe less than £15,000, you don't own your own home, have less than £50 disposable income every month and don't have any assets worth more than £300 then the DRO could be suitable for you.  Please note, if you own a car worth up to £1,000 then you are still applicable for a DRO.

Cost of entering Bankruptcy

The cost of entering Bankruptcy is £700 which is split between the administration fee (£525) and the court fee (£175). If you are on a low income or in receipt of benefits you may qualify to only pay the £525 administration fee.  This fee must be paid when you submit your documents to the court and credit or debit cards are not accepted.

What is not included in Bankruptcy?

There are some debts which are not included in a bankruptcy. For instance, if you owe money to your student loan this cannot be included within your bankruptcy. Similarly, if you have any secured debts, these are not included and you should maintain payments to these debts.  This is typically the case if you have a mortgage on your property with a secured loan too. If you are unable to maintain payments to your secured loan then you would risk your property being repossessed.

Bankruptcy Questions?

If you have questions about the bankruptcy process or your eligibility to declare yourself bankrupt, you can call, email or post it on our bankruptcy forum.

Our bankruptcy forum means whatever your bankruptcy question, our debt advisers can answer it quickly.

Benefits of bankruptcy

  1. You will no longer have to deal with your creditors
  2. Once your bankruptcy is completed you will be able to start again financially without any debt
  3. You no longer have to make payments towards your creditors. If you have available disposable income you will have to contribute this under an Income Payment Order for 3 years

Negatives of bankruptcy

  1. Your credit rating is likely to be severely affected
  2. You cannot acquire credit of £500 or more without disclosing you are bankrupt
  3. You cannot be a director of a limited company
  4. You may lose your home and car

Criteria to enter bankruptcy

- Your unsecured debt must be above £750 to enter bankruptcy

- You will need to complete forms provided by The Insolvency Service or your local court

- You must be able to pay the fee to enter the bankruptcy solution

FAQ

    How do I make myself bankrupt?

    You can make yourself bankrupt by completing bankruptcy forms and paying the necessary fees. You will be asked to complete the Debtor's bankruptcy petition along with a statement of your affairs. You should then find out when your local court deals with bankruptcy petitions and make your way to the court with your money and application forms.

    You will be asked to make your payment and submit your forms. The judge will decide if it's appropriate for you to enter bankruptcy.

    After the order had been made by the judge an Official Receiver is appointed to manage your bankruptcy. It is the job of the Official Receiver to assess your income, outgoings, pension, assets, bank statements and the debts. Should the Official Receiver believe you are able to make a payment towards your bankruptcy they will ask you contribute under an Income Payment Order for 3 years.

    Where can I get the bankruptcy forms?

    The forms to enter bankruptcy are available from your local county court. You can search for your local court by visiting hmctscourtfinder.justice.gov.uk/HMCTS/.

    You can also download online from the Insolvency Service. The link for the bankruptcy forms is here: www.bis.gov.uk/insolvency.

    How long does bankruptcy last for?

    Bankruptcy lasts for 1 year only. After the year is complete you will be debt free and the debt, along with interest and charges, will be written off. You may be asked to contribute under an Income Payment Order which would last for a total of 3 years.

    Will I be able to get credit ever again?

    Obtaining credit after a bankruptcy can be difficult. Your credit file will remain with a default for 6 years. This will impair your credit score and mean you may not be able to obtain credit for some time after your bankruptcy. If you are able to obtain credit it may mean a higher than usual interest rate.

    How quickly will my debt be written off?

    Your debt will be cleared under bankruptcy at the end of the solution. After the year long bankruptcy you will no longer owe the unsecured debt which you borrowed. Interest and charges are frozen and get written off at the end of the solution.

    Will anybody know about my bankruptcy?

    Your bankruptcy will be recorded within the London Gazette and also within the Insolvency register. The London Gazette is a subscription only publication which is used within the financial institution. The Insolvency register is available to access online.

    Will my bankruptcy affect my job?

    In some instances bankruptcy will affect your employment. Accountants, doctors and other professional people are not able to go bankrupt as part of their professional status. Some people working within the financial services profession are not allowed to enter bankruptcy. It's important to check your employment contract before proceeding with bankruptcy.

    If you rent your property then also check the lease as some landlords won't accept bankrupts as tenants.

    What happens to my interest and charges on my debt?

    Your interest and charges on your debt continue to accrue until the end of your bankruptcy when they are written off. You should expect to continue to receive statements from your creditors until you have been discharged from your bankruptcy at the end of a year.

    What is an Income Payment Order?

    An Income Payment Order is a set amount of money which has been determined you must pay towards your bankruptcy by the Official Receiver for 3 years.  If you are considered to have disposable income each month then this will be required for the benefit of your creditors in the bankruptcy.

    What If I can’t afford the payment to my Income Payment Order?

    The amount of monthly payment  you are asked to make in an Income Payment Order is decided by the Official Receiver. If you feel the amount they have set is incorrect you should contact your Official Receiver and explain why you can't afford the payment. The Official Receiver will use industry financial guidelines, the statement of affairs and necessary documentation to make a decision on how much you can afford.

    A creditor is making me bankrupt, what can I do?

    A creditor will be able to make you bankrupt if you owe them £750 or more by applying to the court. A creditor must have sent you a statutory demand before presenting the bankruptcy petition to the court.

    You should contact Debt Support Trust on 0800 085 0226 immediately if a creditor is trying to make you bankrupt.

    What will happen to my house / assets?

    In bankruptcy the Official Receiver is interested in the equity / value of items. So, if your house is worth £80,000 but your mortgage is £100,000 then the property is in negative equity of £20,000. This means you would be able to retain your property in a bankruptcy if you wished, and could afford the repayments. Should you have realisable equity within your house then you may be asked for the equity. This usually means a sale of the property is required, however if a third party were able to buy out your share of the equity you could retain the property.

    The Official Receiver has 3 years from the date you enter bankruptcy to decide if there is any value in the property.

    I owe money to family/ friends, does this have to be included?

    Yes, all unsecured debts should be included (excluding student loans) in a bankruptcy petition. You would not legally owe the money back to your family or friends after completing your bankruptcy.

    Can I keep my bank account in bankruptcy?

    If you owe money to your bank then it's advisable to change bank account to a basic account with a bank you don't owe money to. Barclays and Co-op are recognised as the best basic bank account providers for people with bad credit.

 
 

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