Bankruptcy

Bankruptcy is something you may want to consider if you have overwhelming debts you cannot pay.

If you have unsecured debts of just £750 or more you can declare yourself bankrupt through your own application. Bankruptcy fees are currently £680 and the application is made online to the ‘Adjudicator’

There are also some situations where a creditor can petition for a debtor to be declared bankrupt, if the debtor owes them at least £5,000 in unsecured debts

Typically, you will be discharged from bankruptcy after one year

There are some debts that cannot be discharged in bankruptcy, these are:

  • Student loans
  • Fines
  • Debts arising from family proceedings
  • Budgeting loans and crisis loans owed to the Social Fund

Advantages

  • If you have no funds with which to repay your debts bankruptcy will give you the chance to discharge most or all of your debts to become debt free
  • Bankruptcy usually lasts for just a year leaving you to make a fresh start
  • The Official Receiver or Trustee in Bankruptcy deals with your creditors on your behalf
  • If you were making payments to creditors, these will cease
  • Creditors can’t take further action against you unless the debts are secured on your home or property
  • You’ll still be allowed to keep essential items needed to satisfy basic domestic needs and for work providing they are not of excessive value

Disadvantages

  • Once you are made bankrupt you are no longer in control of your assets as they will be vested in the Trustee in Bankruptcy
  • If you have saleable assets such as property, motor vehicle(s), or valuable household assets these are likely to be sold to pay your creditors
  • If you have a surplus income of £20.00 or greater per month, you may be expected to pay this surplus into the bankruptcy for up to three years
  • Certain professionals are barred from practicing if they are made bankrupt. Other occupations and professions, such as the Police Force, Armed Forces, Local Council and Government Offices may also be affected so ensure you check any contracts
  • You cannot act as a director of a company whilst you are in bankruptcy
  • Bankruptcy will have a serious impact on your credit rating for 6 years from the date the bankruptcy order is made
  • If you run a business it will almost certainly be closed down and any employees you have may need to be dismissed
  • You will be committing an offence if you obtain credit of £500 or more without disclosing that you are bankrupt
  • You cannot manage a business with a different name without telling people you do business with that you’re bankrupt
  • Once a bankruptcy order has been made, your bankruptcy will advertised in the London Gazette
  • Your details are also displayed on the Individual Insolvency Register (accessible on the Insolvency Service website) until three months after you are discharged
  • Any pension payments received during your bankruptcy will be classed as income and may create a surplus to be paid into the estate under an Income Payment Order/Agreement. Depending on your specific circumstances, you may be able to continue to make payments to your personal pension, although this is unlikely
  • If you draw down your pension (as a lump sum) while undischarged bankrupt you would be expected to pay it into the bankruptcy
  • If you have joint debts you are both joint and severally liable, so creditors will look to the other person in the joint arrangement to pay any joint debts in full that were included in your bankruptcy

How to apply for Bankruptcy

Clearly bankruptcy should not be taken lightly and before you take any action you should seek expert advice.

Step 1 – Making an Application

An individual wishing to be made bankrupt will need to complete a bankruptcy application containing prescribed information, authenticate the application, and submit it electronically to the adjudicator. The date of the application is the date on which it is submitted.

Upon receiving a bankruptcy application, the adjudicator must acknowledge receipt and it is at that moment that the application is ‘made’.

In order to determine the bankruptcy application, the adjudicator can request further information from the debtor, and can also undertake verification checks, i.e. a search of the electoral roll to confirm the debtor’s residence.

The adjudicator must determine the bankruptcy application within 28 days from the date on which the application was made, although there is scope in certain circumstances for that period to be extended by 14 days where the adjudicator requests further information from the debtor

Step 2 – After the Order is Made

An Official Receiver will take control of your bankruptcy. They will talk to you about your finances and your assets and look at how you can make some contributions towards your debts. You must co-operate with the official receiver and give them any information they require.

The Official Receiver will also look into your financial affairs and the circumstances leading to your bankruptcy. They will retain control over almost all of your realisable assets which includes but is not limited to your house, your car and money. You will keep your pension as long as it is an Inland Revenue approved scheme and the benefits have not crystallised.

You will not necessarily lose your home or other possessions – but it is very important to seek expert advice to ensure you make the right decisions to protect your property.

It is also possible that you may be required to enter into an Income Payment Agreement (IPA). This is a regular payment of all of your disposable income over £20 per month as a contribution to your overall debts dealt with in Bankruptcy.

If an agreement cannot be reached with the Official Receiver under an Income Payment Arrangement, you may be required to go back to court under an Income Payment Order (IPO) request. In any event, either an IPA or an IPO will last for a period of 3 years.

Call 0330 400 0481 for a free, no-obligation discussion to decide whether bankruptcy is an appropriate solution for you.
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