If you have severe financial difficulties, the most extreme option available to you may be bankruptcy. Before considering this as an option you need to be fully aware of what this option is and the consequences of becoming bankrupt.
What is Bankruptcy?
Bankruptcy is a practical way of dealing with excessive amounts of debt that you cannot pay. The process of becoming a bankrupt will free you from these debts and allow you to make a completely fresh start, subject to a few restrictions. The process also ensures that any assets that you have are shared fairly amongst all your creditors.
Bankruptcy is not something to be entered into lightly. You will be required to give up any assets you may have, including valuable possessions, and you will lose any interest you may have in your home. If you are running a business it will almost certainly involve the loss of your business and the dismissal of any employees that business has.
We recommend before you pursue a course of Bankruptcy that you read the Insolvency Service “Guide to Bankruptcy” which can be downloaded free of charge from their website.
How does Bankruptcy work?
To become bankrupt a court has to make bankruptcy order which comes about after a bankruptcy petition is placed before them. The petition can be placed either by yourself (known as a debtors petition) or by one of your creditors to whom you owe more than £750 (known as a creditors petition). The order can be made even if you choose to ignore the proceedings and/or disagree with them, so once the process has started it is imperative that you engage fully with it. If a creditors petition has been presented and you disagree with it you must try your level best to resolve the issue before it reaches the court as stopping the process once it has started is both costly and time consuming.
How quickly could I start the process?
This very much depends on your ability to provide us with all the information we need and to provide the funds required to start the process (see fees below). Then, depending on where you live and the speed at which the courts work we could have your petition prepared within just a dew days.
Where is the Bankruptcy order made?
The Bankruptcy order will be made at either the High Court in London or at a County Court near where you live. If you have previously entered into an IVA it would most likely be the same court that ratified the IVA who would now make the bankruptcy order. Once the bankruptcy order has been made the Official Receiver (OR) will give order of the notice in the London Gazette, and they may also order that other notices be placed in other publications. You may therefore find a notice placed in your local paper, or a number of papers local to your trading are if you were in business, typically towards the back under the ‘Public & Legal Notices’ section, which announces your impending bankruptcy and invites further creditors to come forward. This used to happen as a matter of course however following the Insolvency Amendment Rules 2009 this now can only happen in exceptional circumstances were there has not been full disclosure of all the relevant financial affairs on your part and/or where there has been a high level of complaints or concern amongst the local community.
How much will it cost me?
Once Insolvency Practitioner (IP) fees have been paid out of the assets of your estate, the current court fee stands at £600 which you must pay in all cases otherwise they will not proceed with your application. If you are in receipt of certain state benefits such as incapacity benefit there are instances where this fee can be reduced to £450. The costs of the bankruptcy proceedings are paid first from the money that is available from your assets. The costs include any fees that the Official Receiver or the Insolvency Practitioner charge for administering your case. For full details on fees and our terms and conditions please see the link at the bottom of this page.
What happens next?
A court hearing date is set and you will be required to attend a ‘closed’ court session, typically with just you and the bankruptcy clerk. It is unlikely you will need to see a judge unless they need some point of clarification. The bankruptcy clerk will take you through the papers you need to sign and you will have to take an oath that the information contained within the papers is true to the best of your knowledge. Following this the papers are sent to the judge who will then make the order and declare you bankrupt.
What happens after I’m declared bankrupt?
The court order transfers your estate to the Official Receiver who will question you about any assets and bank accounts that you may have. They then have to give notice of your bankruptcy to local authorities, courts, sheriffs, bailiffs, HM Revenue and Customs, utility suppliers and the Land Registry as well as to Banks, Building Societies, Mortgage Companies, pension companies and insurers to ascertain the full extent of your assets and liabilities.
What are my duties once I’m declared Bankrupt?
As a bankrupt you are firstly obliged to comply fully with any requests made by your Official Receiver. They may wish to interview you at their offices, and you must attend whereby they will also require you to provide a complete list of all your assets and liabilities and to hand over all books, records and statements and papers relating to your financial affairs. You are also obliged to inform your Receiver of any changes to your financial circumstances whilst you are a bankrupt, like for example inheriting property or money, or receiving a redundancy payment or court payment for a previous accident or injury claim.
You will be required to stop using your bank account(s) immediately however we will offer you advice on choosing a new bank account, and you will not be able to obtain more than £500 credit from any source without disclosing that you are a bankrupt. You should also not make any payments to your creditors directly.
How does Bankruptcy affect me?
Well, firstly you will no longer be able to pay any of your creditors directly; this would need to be done through either your Insolvency Practitioner or the Official Receiver. There are some exceptions to this, for example if you are keeping up payments on a mortgage which would still need to be made to your mortgage provider. Please note that if you do own a home and stop paying the mortgage you may be obliged to sell your home. Your IP or OR will tell all your creditors that you are bankrupt and arrange to pay out any money realised from your estate to those creditors who have claims against you. The costs of the bankruptcy proceedings are paid first from the money that is available, including any fees payable to the IP for administering your case. Preferential claims are paid next and then any available money is paid to other creditors.
What about my home? Is it safe?
If you own a home, in whole or part, that asset will be regarded as part of your estate and may be sold to pay your creditors. The OR will assess the value of the property and any loans secured upon it and decide what to do with it. If it is a family home then proceedings may be halted for up to a year whilst you arrange alternative accommodation for you and your family. To obtain full details on what can happen to your home in a Bankruptcy you should read “What will happen to my home” on the Insolvency Service website
What about my Pension and Life Assurance?
Pensions are not typically included in a bankruptcy estate and have not been since 2000 as long as they are in a scheme approved by HM Revenue & Customs. Life policies do however form part of the assets of an estate and they may be sold or surrendered to release assets to pay your creditors.
What restrictions will there be on me as a Bankrupt?
There are a number of restrictions on you as a bankrupt including the inability to borrow more than £500 from anyone without telling them you are a bankrupt, carrying on a business in a different name to that when you were made bankrupt without telling people and being concerned in or acting as a director in a limited company. You will also be forbidden from holding certain public offices and you may not work as a trustee of a charity or pension fund.
You may open a new bank account however you will have to disclose that you are a bankrupt and you may not have any money over and above that which is agreed as your minimum living requirements as that would need to be handed over to your trustee to pay your creditors.
When will I be free from Bankruptcy?
You will be free from bankruptcy after a maximum of 12 months however is certain cases it can be a shorter time than this. You can also become free immediately if the court annuls your bankruptcy order. If however you have not honored the obligations of the bankruptcy order then the court can order that your discharge is postponed, so it is vital therefore that as a bankrupt you do everything that is asked of you in order to clear your debt obligations. After the court discharge you are no longer liable for any of the debts you had prior to becoming a bankrupt and you are free once again to start to re build your life.
How do I start the process?
If you have read all of this and feel that becoming bankrupt is the best course of action for you, or you are still unsure and would like to discuss it with someone, just pick up the phone and call us or fill in the form on this page. Our expert debt advisors help hundreds of people in debt every week and they understand your issues. They are non judgmental and will do everything they can to help you decide which is the best course of action. If you’ve read this far you’ve made a step in the right direction. Make the next step a positive one and pick up the phone. The sooner you start to deal with your debts the sooner the problem can be sorted.