Bankruptcy is a legally binding debt solution that’s often used as a last resort if you cannot repay your debts in a reasonable amount of time.
What is bankruptcy?
Available to those living in England, Wales and Northern Ireland, bankruptcy is a formal insolvency process whereby your debts are written off. In Scotland this is known as Sequestration.
You can apply for bankruptcy yourself or in some cases one or more of the companies you’re in debt to can petition to make you bankrupt. In order for this to happen you must owe a minimum of £5,000.
Applying for a bankruptcy is done through the Insolvency Service in England and Wales and the High Court in Northern Ireland. At this point you will have to pay a fee of £680.
You can put all your unsecured debts into this type of solution, including mortgages; however, you will have to surrender your home to the agreement. Once your application has been approved, the companies you owe money to are no longer allowed to contact you or take further legal action to get the debt repaid.
Being declared bankrupt usually involves selling thing you own that are of high value, such as your car or house, for money to repay your debts. You may also have to make a monthly payment towards your debt if you earn enough.
Bankruptcies typically lasts for a year, and at the end any remaining debt you have is written off. However, it’s put on a public record and can affect your career opportunities – for example you will won’t be able to direct a company.
Can I apply for bankruptcy?
Bankruptcy should always be a last resort to dealing with your debt as it can have a big impact on your life.
When thinking of applying for bankruptcy you should consider the following:
- Is your total debt level more than the value of all your possessions?
- Are you unable to repay your debts in a reasonable time?
- Do you have little or no spare income which could be used in a monthly payment scheme, such as an IVA?
- Are your circumstances unlikely to change any time soon?
Can I apply for joint bankruptcy?
Joint bankruptcy is available if you and a business partner have taken out debts together. In these cases you can make a joint application for bankruptcy, as long as everyone involved agrees to it.
Couples are not able to apply for joint bankruptcy. You must apply individually, even if the debts are jointly owned.
If a you have joint debts, where you are both named on the credit agreement, and one of you goes bankrupt, the other person will be responsible for paying the full amount owed on their own.
Bankruptcy and transgender
The Gender Recognition Act states that it is an offence for someone to disclose a gender change wrongfully to others.
However, for bankruptcy disclosure is allowed for the following reasons:
- It’s made by or to an official receiver or insolvency practitioner (IP)
- Needed for the official receiver or IP to carry out their role
- Disclosure is made by someone who knows you have a gender change certificate and the information is included in the disclosure
Your trustee will decide whether your previous gender will need to be disclosed as part of your information. This information will be disclosed if:
- It’s required to protect or recover possessions
- It’ll help companies identify debts owed to them
What are the advantages of bankruptcy?
- Bankruptcy offers the chance of a fresh start, usually within a year.
- The pressure of dealing with the companies you are in debt to is removed and all communication with them has to go through an official receiver.
- The companies included can no longer take legal action against you.
- You’ll be able to keep enough money to live on as well as essential belongings – including a car worth £1,000 or less if it is needed for work.
- If you’re self-employed, you can keep any items necessary for your trade.
- You may also be able to keep your home if it has little to no equity in it
What are the disadvantages of bankruptcy?
- Your credit rating will be negatively affected for six years after your bankruptcy.
- It will be put on a public record.
- Your home is likely to be sold if it has a lot of equity in it.
- Cars over the value of £1,000 are usually sold, however, if a friend or relative pays the difference then it’s possible to keep it.
- Some jobs are affected by bankruptcy, for example you won’t be able to work as a company director or be involved with the management of a limited company while you are bankrupt. You can also no longer practice as a solicitor, accountant or in other financial services.
- It comes with a cost – you will need to pay £680 to go bankrupt.
- Bankruptcy can also affect a person’s application to become a British Citizen and their status as a ‘person of independent means’.
Bankruptcy may or may not be the best debt solution for you, so it is important to seek advice from an expert before you begin an application. If you decide that declaring bankruptcy is the right decision, ensure that you withdraw enough money to live on for the time being, as if your bankruptcy is approved, you bank account(s) will be frozen.
Make your Application
You can apply for bankruptcy online, and fill out the application in your own time. You must also pay a fee – in England and Wales, this is £680, and in Northern Ireland it is £669. It is possible to pay this fee in instalments.
Acceptance and Agreement of Terms
If your application for bankruptcy is accepted, your bank and/or building society accounts are immediately frozen, and your case is assigned an ‘official receiver’.
This receiver decides, based on your circumstances, whether you need to make monthly payments towards your debts, and which of your assets should be sold.
Once the bankruptcy comes into effect, control of your money and possessions is transferred to the receiver. Details of all bankruptcies are recorded on the public Insolvency Register.
Cooperate with the Official Receiver
At the start of your bankruptcy, you will need to be interviewed by your official receiver – this can be done in person or over the phone. The receiver then becomes responsible for distributing profits from your savings, and the sale of any assets, between your creditors.
Because the official receiver acts as mediator between you and your creditors, they will no longer be able to contact you. During your bankruptcy, you will also need to open a new bank account for wages and living expenses.
If you have cooperated with your official receiver, you will be discharged from your bankruptcy after 12 months. At this point your remaining debts are written off. It is recommended that you request a letter of discharge in case you need to prove this.
If you have been making monthly contributions towards your debts, these may continue for up to two more years after your discharge.
Bankruptcy negatively impacts your credit score, and will remain on your file for six years from the time it began. Once you have been discharged, you can begin to rebuild your credit score.
What happens at the end of bankruptcy?
Bankruptcies normally end after a year and you will be informed of this by the official receiver. Most debts that have been included will be written off, with the exception of some debts such as court fines and student loans.
It’s important to note that following your bankruptcy you could still have a bankruptcy restriction order made against you – this can restrict your financial affairs for up to 15 years. This order can be made for a number of reasons, including lack of co-operation with the official receiver or if you take on debts knowing you won’t be able to pay them back.
Frequently Asked Questions
It’s very unlikely that being declared bankrupt will affect your current employment. However, there are exceptions to this if you work in certain professions such as the financial industry.
If you run your own business, you will have to surrender this to the Trustee. As such you won’t be able to continue trading with that business; you can begin a new business, but you will find it hard to get any credit to help you.
Even though you are normally discharged after 12 months, bankruptcy will be noted on your credit file for six years. Details will then be removed after this time.
Buying a house after being bankrupt is possible, but it will be difficult. It’s advisable to wait two years before attempting to get a mortgage as you’re more likely to get better terms and interest rates – it also gives you time to rebuild your credit score.
Yes – when you submit your application online, an adjudicator will decide whether or not to grant you your bankruptcy. As such it is possible for it to be denied.
This is often done if they feel you are able to pay back your debts or if there is another route you could go down that is better suited to your situation.
Yes, if you fall into debt with an account and you break your credit agreement, the company can petition for you to be made bankrupt. You will normally be notified of this by post, so if a company writes to you regarding this it is important to contact them straight away.
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