A Complete Guide to Declaring Yourself Bankrupt
Declaring yourself bankrupt is a legal process, generally considered as a last resort, for people who no longer have the means to pay off their debts in a reasonable amount of time.
There are many different processes available for people in severe debt problems so you must be sure that bankruptcy is right for you. If you are unsure of the best solution for your situation you should always enlist the help of a professional advisor who will outline your options and outcomes.
Who is bankruptcy suitable for?
Generally, bankruptcy is a process available for those who have no real way of paying off their debts, and who have few assets of financial value.
If you are a homeowner it is highly advisable to seek alternative methods of debt management. If there is equity in your home it is likely that your house will be sold and your share of the money left over after repaying the remaining mortgage amount will be used to pay towards your debts.
Landlords can apply to legally evict you if your debt has caused you to fall into rent arrears so it is important to be sure bankruptcy is your only available option.
Can I be forced into bankruptcy?
Yes. If you owe more than £5,000 you can be forced into bankruptcy by the lender. The process is different to applying for personal bankruptcy and it is rare high-street lenders will pursue this action as there is little chance of them recouping the debt.
Cancelling a bankruptcy order
You are entitled to cancel your bankruptcy order if your financial situation changes and you can pay off all of your debts.
Bankruptcy can also be cancelled if your debts and fees have been paid or secured by a third party.
You can also cancel your bankruptcy order if you enter into an Individual Involuntary Arrangement (IVA) with your creditors to pay all or part of your outstanding debt.
You must apply for a cancellation by completing the appropriate form and presenting it to the nearest court that manages bankruptcy. You must also tell the court if you require the details of your bankruptcy to be removed from the Land Charges register. You will be given a court hearing that you must attend and you will still be required to meet your Official Receiver if you’ve been asked to.
If the court agrees to your application they will make an annulment order and cancel your bankruptcy.
What debts can be included in bankruptcy?
Typically, debts included in bankruptcy applications are credit card debt, loans, overdrafts, utility arrears, store cards, catalogue debt, and benefit overpayments.
Debts from child maintenance arrears, criminal fines, debts secured against your home, social fund loans, student loans, TV licence arrears; debts arising from fraud, family proceedings, personal injuries against third parties and other specific debts not applicable to bankruptcy will not be accepted as part of the bankruptcy procedure.
The advantages of going bankrupt
Once you have been declared bankrupt your creditors are not entitled to pursue you directly in order to recoup any money owed to them. They will be expected to deal solely with your trustee (generally the official receiver or an insolvency practitioner) with regard to any issues regarding your debts.
When bankruptcy is approved most of your debts are written off immediately and the creditors of these debts will be unable to make any attempt to recoup their money.
The disadvantages to becoming bankrupt
Once you have been declared bankrupt you will be subject to restrictions by law regarding your application for further debt, running a business and managing your finances. You will also be in danger of losing valuable assets that belong to you.
Bankruptcy will be shown on your credit report and will impact your credit score. Bankruptcy will stay on your credit report for 6 years from its date of approval.
Loss of assets during the bankruptcy process
During the bankruptcy process any assets you own will be sold and the money accrued will be used to go towards paying towards your debts. Assets will include your home, car and any valuables not deemed essential to everyday living.
On the receipt of your bankruptcy order you will be asked to hand over any assets to your trustee. Your trustee is likely to be the Official Receiver or an Insolvency Practitioner.
They will sell your assets to pay towards any of your accrued debt. It is accepted that you will be able to keep any items that pertain to your employment or carrying out your job including tools and a vehicle, and to household items that are required for everyday living.
Expensive or luxury household items can be sold to pay towards your debt.
Your home and your car will likely be acquired and sold to pay towards your debt. You may have to give up legal ownership of your home if the equity value is over £1,000.
If you home hasn’t been put up for sale by your trustee within 3 years it will be then transferred back into your name. While the ownership of your home has been transferred to your trustee you can’t sell the property to claim money back from its sale.
This handover will be added to the property’s entry on the land registry showing the bankruptcy restriction notice.
If you are the joint owner of your home then your share of the equity is transferred to the trustee. If any attempt is made to sell the property or of any other dealings in its regard then the trustee will be made aware and will act accordingly.
You will usually be entitled to keep any money you have paid into a pension scheme but if you are receiving pension payments they will be classed as income and will be used to pay towards your debt.
The bankruptcy application process
You can only apply for bankruptcy online.
You have to pay the full cost of a bankruptcy application before you can submit your completed application. The cost of declaring yourself bankrupt is £680.
The timeline of the bankruptcy process
1. Be sure bankruptcy is the correct option for you.
First you should make absolutely sure that bankruptcy is the correct response for your particular debt problems. Seek professional advice in order to be sure that there aren’t more suitable alternatives available.
Bankruptcy should always be a final resort. You will be expected to have exhausted all alternatives to manage your debt before applying for bankruptcy.
A professional debt advisor will be able to take into account all of your financial issues and confirm with you that it is your best option. Always seek advice before making the decision to go bankrupt.
2. Register for the online bankruptcy application
You will need to create an account at https://apply-for-bankruptcy.service.gov.uk/. You will need to enter your name, address and provide answers for three security questions that will be used each time you log into your application.
When your application has been confirmed you will receive an email containing your bankruptcy application number. You will need this number each time you want to log into the system.
3. Pay the required fees of going bankrupt
The cost of declaring yourself bankrupt is £680. You have to pay £550 to the Official Receivers and £130 to the Bankruptcy Adjudicator.
You may be able to pay in instalments leading towards your application but you cannot submit your full application until the fees have been paid in full. Payments are made online by bankcard using the online bankruptcy fee payment system.
You can fill in all the details required for your application in the meantime and store them on the system until you have acquired the funds required to cover the cost.
If you receive benefits or are on a low income and your debt is less than £20,000 then you may be entitled to a debt relief order that only incurs a £90 application fee. If you think you may be applicable for this alternative then seek advice from a debt specialist.
4. Complete all the requested application information
You will be expected to fill in various areas of information regarding your personal details, employment, bank accounts, savings, assets, debts, income and expenses, existing legal proceedings and your debt history.
It is important that you gather as much information as possible for every category.
You will be expected to provide accurate information about your income including wage slips, benefits awards and pension statements.
For your expenses you should provide proof of your rent or mortgage payments, and of all utility and council tax bills.
Information regarding your debts should include creditor liaison and debt collection letters, bailiff or enforcement letters, loan certificates, overdraft proof, credit card statements, vehicle or other large purchase agreements, hire purchase and rental agreements and existing court fines. If you haven’t got all the proof at hand for each of these don’t worry – your Bankruptcy Adjudicator will help you gather any missing information and your credit report will outline most areas of debt required for your application.
If it is found that you have surplus income then you may be expected to enter an Income Payments Agreement (IPA) for 36 months to contribute towards your debts. If you fail to agree to enter into the IPA court proceedings are likely to force you into making the payments. This is called an Income Payments Order (IPO).
The expenditure section will include various lifestyle elements and outgoings that may or may not be permitted in bankruptcy. Items not included will show what you spend on entertainment, alcohol, tobacco, groups, clubs and gifts etc. These items will be considered towards your surplus income and can be allocated towards a possible IPA.
You can edit each area involved in your application and update the information whenever you log into your application. Don’t worry about inputting all information in one sitting, yet once again, to make sure you have completed all areas as accurately as possible it could be worthwhile to employ the assistance of a professional bankruptcy advisor.
5. Submit your application
When you have completed all sections of the application you are ready to make your submission. When you submit your completed application you will be asked to confirm that you are the person named in the application, that all information submitted is correct and accurate and that you consent to a credit search using all the details you have supplied.
The information you supply will be used to assess your situation and to ascertain whether or not you qualify for bankruptcy status. When accepted that you are suitable your information will be passed to the Official Receivers Office who will interview you about your income and expenditure, your living situation and determine if you will be subject to and IPA or an IPO.
6. You will receive email confirmation from the Bankruptcy Adjudicator’s Office
Once your application has been completed and full payment of the fees has been made the Bankruptcy Adjudicator will aim to deal with your application within 2 working days. However, it may take up to 28 days in certain cases to arrive at a decision. Be sure to respond quickly and efficiently to any emails requesting additional information.
On approval you will receive a confirmation email. You can also log in to your account where a copy of your bankruptcy order will be hosted including the date it commenced.
Once your bankruptcy order is under way it is likely that your bank and building society accounts will be frozen so it’s advisable to withdraw any funds you may need to live on for the forthcoming 2 or 3 weeks to avoid financial emergencies. If your bank refuses to allow you to continue to bank with them when your bankruptcy is approved then you are entitled to create an alternative basic bank account with another provider.
7. You are then declared bankrupt
Once you are declared bankrupt your name and details will be published on the Individual Insolvency Register.
You can apply to have your address removed from your entry if you fear you will be at risk of violence. You can apply to the court for a Person At Risk Of Violence order (PARV) who will make you aware of any fee involved and details of your hearing with a judge. A decision is usually made on the day of the hearing.
This does not affect your bankruptcy. You can only apply for a PARV if you have begun your application for bankruptcy but should not submit the bankruptcy application until your PARV has been granted.
You will receive a letter within 2 weeks of your official bankruptcy from the Official Receiver. The Official Receiver is a court officer who will manage the outcome and effects of your bankruptcy. They will be your bankruptcy trustee in the first instance.
You will receive an information pack outlining the process and details of the actions you need to take. You may be required to fill in additional questionnaires, attend interviews with the Official Receiver and supply further information regarding your debts, creditors, assets, income and expenses. Interviews with the Official Receiver may be carried out by telephone or face to face.
The following restrictions are applied to your bankruptcy order and are enforced by law. Breaking them could result in criminal prosecution.
- You cannot borrow more than £500 without announcing your bankruptcy to the lender.
- You may not act as a director in any company without the permission of the court.
- You cannot set up, manage or promote a company without the permission of the court
- You cannot manage a business of a different name without telling any people you do business with that you’re bankrupt.
- You cannot work as an insolvency practitioner or authorised debt specialist.
What happens after bankruptcy?
Your creditors will have to make a formal claim to your trustee in order to try and recoup any payment towards the debt.
Until you are released from bankruptcy you will be enforced to carry out the restrictions outlined by the bankruptcy agreement.
After a year you will be released (or discharged) from your bankruptcy, its restrictions and of all of the debt it covers. Any assets that have been considered in your agreement can still be used to pay towards your debts.
The Individual Insolvency Register will be updated within 3 months of your bankruptcy discharge but to have entries or notices removed from the Land Registry or Land Charges you will have to submit an application to have the updates carried out.
Proof of discharge
You should email the Insolvency Service and request confirmation of your bankruptcy’s cessation. If applying for a mortgage you will need a Certificate of Discharge. You can apply for one at either the court that managed your bankruptcy at a cost of £70 (£10 for subsequent copies), or online. There is no fee for an online request.
Seeking the correct professional advice
Being sure that bankruptcy is the only avenue left for you is a big decision. You should always seek advice from qualified debt specialists before making your final decision. You could be creating more problems for yourself than you are aware of by choosing bankruptcy to manage your debt, especially if there are more suitable and simpler ways of dealing with your financial situation. Always seek professional advice.