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Bankruptcy
CLICK TO APPLY FOR HELPBankruptcy can provide relief from debt if you have little in the way of possessions and surplus money that would be available to creditors in a bankruptcy.
What is Bankruptcy?
Bankruptcy is a form of insolvency which allows you to deal with debts you can no longer manage. It is most suitable for those with minimal assets and who cannot make minimum payments towards creditors.
Out of all the debt solutions available, Bankruptcy has long held a certain stigma and this stigma has often prevented people from opting for bankruptcy. However, in some circumstances, it is the most appropriate solution and should be considered.
Traditionally, an application for bankruptcy would be submitted through the courts. However, applications are now submitted online and do not involve the courts. This is something that you can do easily yourself, but there are charities and free-to-client debt solution providers who can assist you if needed. Alternatively, we can help you petition for your bankruptcy.
The fee charged for going bankrupt is £680. This fee consists of a £130 adjudicator fee and a £550 bankruptcy deposit.
Creditors can also petition for your bankruptcy but only if your debt exceeds £5,000. This has recently been increased from £750. The fee a creditor has to pay to petition for your bankruptcy includes the petition deposit of £1,500, the court fee of £302 plus their solicitor’s legal fees which could increase the total to £2,770. The increase in the minimum level of debt is likely to result in the number of petitions by creditors reducing. Instead, creditors are more likely to pursue the judgment route to secure debt payments either by instructing bailiffs to uplift your goods, Income Payments Orders or Charging Orders. Please read our blog on County Court Judgments for more information on this process.
If your unsecured debts are less than £30,000, you don’t own a home, have savings and have assets worth less than £2,000 and you have £75 or less left over each month after you have settled household expenses, a Debt Relief Order (DRO) might be a more suitable option for you. The cost of a DRO is much less than bankruptcy at only £90.
For full debt advice and whether bankruptcy or a DRO would be your best option, you can also speak to one of our advisors.
Is a Bankruptcy suitable for me?
Bankruptcy can provide a fresh start especially if you cannot afford to make monthly contributions to your unsecured creditors and you minimal assets. Your household possessions and certain “tools of trade” are excluded from bankruptcy. You will get your discharge 12 months after the date of your bankruptcy order (unless you do not co-operate with your Trustee as your discharge can be suspended).
A Trustee in Bankruptcy has the responsibility to turn the assets covered by your bankruptcy into cash. This could take several years especially if you have a property with equity. So even though you get your discharge after 12 months, the tasks of the Trustee will continue. This will include agreeing for you to make monthly contributions for a period of 3 years if you have surplus funds after taking into account your reasonable costs of living.
A Trustee can also require that you downgrade assets. For example, if you have a car that you can prove is essential to help you earn a living or is needed to help look after a relative, and the value of the car is considered to be excessive, (generally more than £3,000) the Trustee can require you buy a cheaper alternative and pay the difference into your bankruptcy.
Bankruptcy only covers unsecured debt such as credit cards, loans, arrears of council tax and utilities, revenue debt including overpaid tax credits and shortfalls on properties that have been sold. Certain debts are not covered by Bankruptcy including matrimonial debts, student loans and court or criminal fines.
There are other solutions including IVA’s, Debt Relief Orders, Bankruptcy and Dealing Directly with your Creditors which may be appropriate. If you live in Scotland, the solutions are different, please visit Scottish Debt Solutions.
How will Bankruptcy affect me?
Bankruptcy can have an impact on your life for a long period and generally people entering Bankruptcy will be subject to the following limitations during the period of the Bankruptcy order.
- Assets you own that are not excluded from bankruptcy will have to be sold and the funds paid into your bankruptcy. This includes any equity you own in a property or your car where the value is above £1,000 and your car is not classified as a tool of trade.
- Surplus income after taking into account your reasonable costs of living has to be paid to your Trustee for a period of 3 years. This continues even though you get your discharge as explained below.
- You are automatically discharged from bankruptcy 12 months after the bankruptcy order. The automatic discharge can be suspended if you fail to co-operate with your Trustee. The discharge does not stop your Trustee from dealing with your assets and collecting monthly income contributions.
- You will be unable to act as a director of a company or be involved in running a company without a courts permission.
- Bankruptcy could prevent you from working in particular industries particularly financial services which are regulated. For certain professionals including solicitors and barristers, there is a risk that if made bankrupt you could face action against you called Bankruptcy Restriction Order which if made against you could result in restrictions in your ability to continue in practice.
- Your details will be on a searchable register, Individual Insolvency Register for a period of 6 years and will affect your credit rating.
- You will be unable to get credit of £500 or more without telling the lender that you are a bankrupt.
Please visit Bankruptcy the Process for more detailed information on the process and effect of Bankruptcy.
Help with preparing your petition
The Debt Advisor Ltd is regulated by The Financial Conduct Authority. Please be aware that debt solutions such as bankruptcy come with a fee and a breakdown of these fees will be clearly explained to you before entering into the solution. We hope that the information and debt advice on this site including Frequently Asked Questions, will help inform you.
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Bankruptcy Process
Opting for Bankruptcy needs careful consideration. The decision should only be taken after you have taken independent advice from a practice regulated by the Financial Conduct Authority to offer debt counselling advice. The prime reason is that your affairs will be investigated and if your behaviour prior to bankruptcy is found to be reckless or fraudulent or you have gifted away assets, you could face a Bankruptcy Restriction Order.
We realise that dealing with debt is a particularly difficult, stressful and confusing time. It makes sense to talk to family or a trusted friend but we know this is not always possible. If you are struggling with debt stress, we recommend you read helpful information which offers help and advice on dealing with debt stress.
If after consultation, Bankruptcy appears the most appropriate solution, it will be necessary to complete an online application to petition for your Bankruptcy. We can help you prepare the application. When completing the online application, you will need to ensure you have the following information to hand:
- Your personal details.
- Your employment details.
- Details of your bank accounts and any savings accounts.
- Details of your assets, for example your car and property details if applicable.
- Details of the money you owe, including account numbers and outstanding balances.
- Details of your income and your expenses.
- Details of any legal proceedings you have been served with.
- You debt history for example your reasons for accruing the debts.
The application is relevant if you live in England and Wales or have lived there in the past 6 months. The application need to be completed accurately. Bankruptcy is a legal process and there can be problems if you fail to detail all your information correctly.
Bankruptcy applications were previously dealt with through the courts but as of 6th April 2016, applications are now submitted online. You can do this yourself, or nominate an insolvency practitioner to do this for you.
Before submitting your application, you will need to pay a £680 fee. This consists of a £130 adjudicator fee, and a £550 bankruptcy deposit.
Once submitted, you application will be reviewed by the adjudicator.
Once you are made bankrupt, this is followed by an interview with the Official Receiver, who initially acts as Trustee in Bankruptcy. The Official Receiver has 12 weeks to decide whether an independent Trustee should be appointed to manage the bankruptcy and if so, whether a meeting should be held to appoint the Trustee.
Whilst the above process is taking place your bank accounts may well be frozen meaning you won’t have any access to money. We would recommend that you withdraw enough money out of your account to cover the cost of living whilst the bankruptcy is being approved.
Period of Bankruptcy
As of 1st April 2004 the discharge period for bankruptcy is twelve months after the date of the Order if the Official Receiver reports that there are no matters of concern. For those individuals who were made bankrupt before 1 April 2004, they will get their discharge after three years or on 1 April 2005, whichever is sooner.
From April 1st 2004 second and subsequent bankruptcies will be treated the same as the first bankruptcies i.e. discharge 12 months after the date of the Order. That is unless the discharge is suspended because the bankrupt has not co-operated with their Trustee.
The Effect of Bankruptcy
Whilst bankrupt, if you have surplus income after taking into account your reasonable costs of living, the Trustee will ask for a monthly contribution from your income for a period of three years; as such payments continue beyond the discharge period.
The assets excluded from bankruptcy comprise:
- Personal possessions of a reasonable value
- Tools of trade including vehicles, books or other items of equipment needed personally in your employment
The Trustee in Bankruptcy will then decide what happens to all assets not exempt from bankruptcy. They have a duty to realise these assets for the benefit of creditors. However, it is possible to agree with the Trustee that a sum of money is paid to them to enable you to keep hold of the asset. This money must come from an independent source and cannot be your money.
The bankruptcy proceedings are advertised in the London Gazette and can be advertised in a local paper if the Trustee feels this is necessary to bring your bankruptcy to the attention of creditors. Advertising in the local press is at the discretion of the Trustee.
Is there anything else I should know?
All debt solutions should be very carefully considered. There are other solutions to be considered including DMP, IVA, Debt Relief Orders, Debt Consolidation through raising Finance and Dealing with Creditors Directly.
Fees will be charged if a solution is taken in order for us to set up your plan and maintain it – all fees will be outlined during your consultation. For further information on fees, please see the FAQ section of the different solutions available. Retained payment may place you further into arrears. You have the right to a cooling off period of 14 days. It is likely that your ability to obtain further credit in the short term will be affected and this may also be the case over the medium to long term. Calls to our free phone number from mobile phones and other networks may be charged.
The Insolvency Service website has helpful information on https://www.gov.uk/options-for-paying-off-your-debts/overview to support those who find themselves in financial difficulty during the recession.
Frequently Asked Questions “FAQ’s
We have produced FAQ’s on all debt solutions including Bankruptcy
Before considering opting for Bankruptcy, it is important you consider how your property is dealt with.
Your Share of Equity
Your share of equity is calculated by deducting the balance of your mortgage from the current value of your property. If the property is owned jointly, then generally it is assumed that you are entitled to 50% of the equity. See example below:-
| £ | |
| Current value of property | 250,000 |
| Deduct balance due on Mortgage | (175,000) |
| Net Equity | 75,000 |
| Less Spouse’s Share | (37,500) |
| Your Share of Equity | 37,500 |
Calculating your share of equity can be more complex especially if the property is in your sole name. Your partner maybe entitled to a share of the equity (called beneficial interest) because they can demonstrate they have contributed to the mortgage and or upkeep of the property over a period of years.
If you share of equity is less than £1,000, your equity will be excluded but may have to pay for a solicitor to help you get the Bankruptcy Restriction removed from your property.
Trustee’s Duty
The Trustee in Bankruptcy is obliged to recover a sum of money equal to your share of equity in the property. A Bankruptcy Restriction will be added to the property’s entry on the land registry and you will not be able to sell or refinance your property without agreeing a deal with your Trustee. The registration can be removed if you can demonstrate you do not have an interest in the property.
The Trustee has 3 years to deal with your equity in your property. If for some reason your Trustee was struggling to get you to co-operate with either introducing a sum in lieu of your equity or selling the property, they can apply to court for a possession order and ultimately you could be evicted from your property. So dealing with a Trustee quickly and promptly in relation to your share of equity is vital.
Getting out of Bankruptcy
If you end up bankrupt because perhaps you have perhaps ignored important paperwork or not understood the seriousness of your situation, it is possible to get out of bankruptcy if you can pay your debts and the costs of bankruptcy in full. Alternatively, it is possible to get out of bankruptcy by putting forward proposals for an Individual Voluntary Arrangement “IVA”.
Mr T saved £25,000 opting for IVA out of bankruptcy
Mr T petitioned for his own bankruptcy following the failure of a printing business he had set up. However, within 6 months of bankruptcy his mother died leaving her mortgage free property to Mr T and his brother. If Mr T stayed bankrupt, all of his share of his mother’s property (after costs of sale) would have been paid into his bankruptcy. All funds paid into a bankruptcy attract charges by The Insolvency Service which can be substantial. These “realisation” fees are not payable if an IVA is approved and the Bankruptcy is cancelled. Mr T ended up saving circa £25,000 by getting himself out of bankruptcy and proposing an IVA which provided for his debts and the remaining costs of bankruptcy to be paid from his share of inheritance.
Clearly, bankruptcy is complex and it is vital that you get advice before you opt for bankruptcy or if you find yourself bankrupt. The team at The Debt Advisor deals with complex cases such as the example above. Please do get in touch.
BRO is an order that can be made against you when you have been made bankrupt and it is found that your behaviour prior to bankruptcy is dishonest, reckless or fraudulent.
What is Bankruptcy?
Bankruptcy is a form of insolvency which allows you to deal with debts you can no longer manage. It is most suitable for those with minimal assets and who cannot make minimum payments towards creditors.
A BRO can extend certain restriction of bankruptcy for up to 15 years.
The effects of a BRO includes:-
- Obtaining credit beyond £500 without Court’s permission is a criminal offence.
- The Bankrupt has to trade in the name under which the they were adjudged bankrupt.
- Prohibition from acting as a director of a limited company.
Restrictions will also be placed upto you in your everyday life including but not limited to being unable act as a local councillor or a school. governor, exercise a right to buy or be a Member of Parliament in England or Wales. If a BRO is made against you and you break any of the restrictions, you’ll be committing a criminal offence. You could be fined or even sent to prison. The period of the BRO will depend on how culpable the bankrupt is deemed to be. As a guide the period for the restrictions is imposed as follows:
- 2 – 5 years Culpable Behaviour – incurring debt knowing you could not settle it
- 5 – 10 years Reckless Behaviour – for example racking up debts by gambling
- 10 – 15 years Dishonest Behaviour – getting involved in fraudulent activities
What can lead to a BRO?
The official receiver can ask the court to look at any of the following behaviour when deciding if a BRO should be made
- Incurring debts that you knew, or ought to have known, you had no reasonable chance of repaying.
- Giving away assets or selling them at less than their value.
- Deliberately paying off some creditors in preference to others.
- Gambling or making rash speculations or being unreasonably extravagant.
- Failing to keep or produce records that would explain a loss of money or property
- Behaving fraudulently e.g. giving false details to obtain credit.
- Causing your debts to increase by neglecting your business affairs.
- Failing to supply goods or services that have been paid for (e.g. taking deposits).
- Carrying on a business when you knew or ought to have known you could not pay your debts
- Not cooperating with the official receiver or trustee.
https://www.gov.uk/government/publications/bankruptcy-fact-or-fiction When deciding whether to make a BRO, the court and The Official Receiver will look at your behaviour before and after bankruptcy. The length of your BRO depends on how much creditors have lost, your attitude, how aware were you of your situation at the time of the behaviour and the likelihood of you doing it again. Bankruptcy Restriction Undertaking If you do get notice from The Official Receiver that they intend applying for a Bankruptcy Restriction Order, you will be provided with a copy of the application to the court which sets out what the Official Receiver believes you have done and any supporting evidence. You need to decide whether you propose to challenge the application or accept the BRO application. Acceptance can mean that the term of the restriction is less than the term the court is likely to determine. The acceptance is effectively agreeing to a Bankruptcy Restriction Undertaking BRU and the details go onto the public insolvency register until the end of the BRU. Getting advice on your options if you are facing serious debt issues is vital. The Debt Advisor is able to advise on all options including formal and informal options.
Bankruptcy can provide relief from debt if you have little in the way of possessions and surplus money that would be available to creditors in a bankruptcy.
What is Bankruptcy?
The Insolvency Service have created a website dedicated to debunking the ‘myths’ of Bankruptcy. You can download content explaining how bankruptcy works, how it can and can’t affect your life and how it compares to other debt-relief options.
For more information click here
