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    How does Bankruptcy work?

    What is bankruptcy?

     

    Bankruptcy is just one option available that can write off your debts. In bankruptcy, your money is shared amongst your creditors and most of the remaining debts are then written off.

    What’s the cost of bankruptcy?

     

    Bankruptcy is not a free debt solution. If you wish to declare yourself as bankrupt, you must first pay a £130 adjudicator fee as well as a £550 deposit to your official bankruptcy receiver. In total, to become bankrupt you will need to pay £680.

    Bankruptcy income payment order

     

    Once you have declared bankruptcy, the official receiver will thoroughly investigate your financial situation. The official receiver will look at your income and expenditure to determine if you have enough money left each month that could then be used to pay towards your debts and administration costs.

    How to go bankrupt

     

    In order to go bankrupt, yourself or someone else must make a petition to the courts to make you bankrupt. A petition includes a form which contains information about you, your debts, and your financial history. You will receive a copy of any of the information that is passed on to the courts.

    End of bankruptcy

     

    You may still have to make payments towards your debts for up to three years as part of your bankruptcy agreement. Any assets that you had during your bankruptcy can still be used to pay off your debts even after your bankruptcy ends. At the end of your bankruptcy, most of your debts will be written off.

    Calculating your living expenses

     

    You are obligated to tell the courts your household income and any normal living expenses. This includes: housing costs, utility bills, food bills, clothing costs, any work costs, health expenses, and insurance bills.

    Debts we can help with

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    payday-loan

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    HMRC Debt

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    rent-arrears

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    credit-cards

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    Store Cards

    phone-bills

    Phone Bills

    catalogue

    Catalogues

    Bankruptcy FAQs

    Will bankruptcy stop bailiffs?

    When you’re declared bankrupt, most types of creditors must stop taking any action against you and stop chasing you in order to get you to pay them. This means:

    • They mustn’t do anything to try to get money from you, such as sending you letters or getting bailiffs and debt collectors to visit you, although they can still send you letters to tell you the balance of your account
    • They must not start any new court action against you unless they get permission from the court to do so

    If the creditor is chasing you concerning a debt that wasn’t included in the bankruptcy then you will need to deal with paying them your debt.

    What happens to my partner if I go bankrupt?

    Even if you are married, you can file for an individual bankruptcy without your spouse. However, even if you file as an individual, going bankrupt can still have consequences for your spouse.

    If you and your spouse have joint debts together (like a loan or a mortgage) then once one party is made bankrupt, the other will become liable for the whole amount of debt. This means that they will be expected to keep up with the repayments by themselves. Nonetheless, if both you and your spouse apply for bankruptcy, neither of you will be liable for the joint debt and the debt will be written off in the bankruptcy.

    Your spouse should be able to keep all of their assets if you become bankrupt. This means that they can keep their wages and savings, as well as the assets that they personally own. If you own assets together, your spouse can either buy out their share of the asset or the asset will be sold. Your spouse will receive half of the money when the item is sold and the other half will be put towards the bankruptcy.

    It’s very unlikely that you will be able to keep your home in bankruptcy, even if your spouse partly owns it. However, you can contact your insolvency practitioner about different options that may be available to you if you do wish for your home to stop being used as an asset.

    How do I become bankrupt?

    There are three main ways to become bankrupt:

    • If you owe more than £5000 to your creditors, they can apply to have you made bankrupt.
    • You can declare yourself bankrupt if your debts have become too much for you.
    • You can be made bankrupt if you don’t keep to the terms of an IVA. An IVA (or Individual Voluntary Arrangement) is another debt solution available alongside bankruptcy. If you wish to know more about what an IVA is or whether or not you would qualify for an IVA, please contact our trained debt advisors. 

    What is the cost of bankruptcy?

    Bankruptcy is not a free debt solution. If you wish to declare yourself as bankrupt, you must first pay a £130 adjudicator fee as well as a £550 deposit to your official bankruptcy receiver. In total, to become bankrupt you will need to pay £680.

    What is the process of bankruptcy?

    Either you will make a petition to the court, or someone else will petition to make you bankrupt. This means that a form will be submitted to the courts with information about who you are, where you live, how much you owe, what assets you’ve got, who your creditors are, whether you’ve been bankrupt before, and whether you’ve been through any insolvency procedures in the last five years. You’ll be given a copy of any in the information given to court.

    If someone else has asked for you to be made bankrupt, you’ll be made aware of it by the court. If you don’t want to be made bankrupt you’ll need to prove that you don’t owe the person applying any money, or you’ll need to pay back what money you do owe them.

    The first stages of the bankruptcy processes are usually managed by an official receiver, who works for the Insolvency Service. They are normally your trustee, unless an insolvency practitioner takes on that role. Your trustee explains the bankruptcy process to you and sells any goods or assets that you own which are not everyday household items or things needed to do your job.

    If your bankruptcy is approved, you’ll have an interview with the official receiver, either by telephone or in person. Face-to-face interviews can take up to three hours, and telephone interviews last around half an hour. You must attend this interview and co-operate with the official receiver for the bankruptcy to run as smooth as possible. If you don’t the bankruptcy may go on longer than the usual twelve months or you may have to attend court.

    It helps to be prepared with the information the official receiver needs. You’ll need to tell them everything about your finances, including all debts, bank accounts, assets, and changes in income. You will need whatever paperwork you have to prove what you’re telling them; the receiver will tell you exactly what paperwork you’ll need before the interview. You should also tell them if you need special help (if you have a disability or difficulty), there’s anything that needs to be sorted out urgently, or you need more time to find paperwork for the meeting.

    • If you get a questionnaire, fill it in and return it as directed. If you don’t understand anything, note it down on the form.
    • Your creditors will receive a report of your assets eight to twelve weeks after your interview.
    • If you’ve broken the law in your financial dealings the Insolvency Service will be told.
    • Your trustee may advertise in the newspaper to ask your creditor to make formal claims on your debt.

    How are my debts paid in bankruptcy?

    Your assets are sold by the official receiver or the insolvency practitioner (if you’ve been assigned one) and the money is split between all your creditors who have made a formal claim. The official receiver decides how the money is split and you cannot make payments directly to your creditors by yourself, unless it is on secured debts (like student loans, court fines, and child maintenance payments), or some crisis loans from the Department of Work and Pensions.

    The money is split (in order of priority) between:

    • The costs of the Bankruptcy.
    • Claims from any of your employers.
    • Claims from your creditors.
    • Any interest on your debts.

    Any money left is returned to you. If all your debts are paid in full you can ask to have your bankruptcy annulled (cancelled).

    What happens to your assets in Bankruptcy?

    You can keep any items you need for your job, anything belonging to or exclusively used by a child (within reason), and everyday household items like furniture and clothing. If your household items are valuable they can be sold, but they will be replaced with a cheaper equivalent.

    Can I go Bankrupt and keep my house?

    If you do not have enough assets to pay your creditors without selling your house, it can be sold as a part of the bankruptcy procedure.

    If you’re the sole owner of the property, the house will be sold and any money left after paying off the mortgage will be used to pay off your debts.

    If you own the property jointly with someone else your share of the equity in the property will be used to pay off your share of the mortgage and any money left will be used to pay off your debts.

    If you have a partner, spouse or former spouse, or children living at the property, the trustee usually can’t sell the property without your permission for a year after the date of your bankruptcy. If after three years there’s less than £1000 of equity remaining in the house then your house will not be sold and the ownership will not return to you. If more than £1000 equity remains after this time, the house may still be sold and a charging order will state the amount that will be taken from the sale towards repaying your debts.

    You can stop the sale of your house if a family member or friend buys out the equity in your house. They must contact the trustee to do this.

    If you fall behind with your mortgage payments, your lender may sell your home. This is not a part of the bankruptcy but can happen at the same time. You should tell your trustee if this happens to you.

    What if I am renting whilst bankrupt?

    If you rent your house and are up to date with your rent payments, normally nothing will happen with your tenancy. If you are behind on your rent, even if the missed payments are included in your bankruptcy, your landlord can apply to evict you. This is not a part of the bankruptcy but can happen at the same time.

    What happens to bank accounts and savings when going bankrupt?

    You must stop using your bank account and hand over your cards and cheque books to your trustee when the bankruptcy order is made. The account will be frozen. The trustee will then free up some money for your daily needs, or for the other account holder in a joint account.

    It is good to be aware that the bank is allowed to use money from one account to pay off debt on another account held at the same bank.

    When you open a new account you must tell the bank or building society that you’re bankrupt.

    How will bankruptcy affect my ability to buy a home?

    A person may struggle to borrow money or secure credit if they are going through a bankruptcy process. An individual will not be able to access significant credit until they are released from bankruptcy because their accounts will be frozen. 

    There is a little bit more wiggle room after a bankruptcy process has ended because you can open up new accounts with banks and building societies. However, there could still be restrictions on accounts by any lender that accepts you, as a result of a recent bankruptcy. With that in mind, it can be difficult for people to buy a home soon after a bankruptcy as many creditors will be reluctant to lend you money and lower your credit rating.

    Can I decide what assets are taken?

    Non-essential assets can be taken without much thought. These are items that have little or no bearing on the quality of your day-to-day life. An essential item is something that you legitimately need to maintain a standard quality of life; a fridge or a freezer would be a good example of this. Items with a higher valuation will obviously cover more of your debt. If you can make a legitimate case for an item being an essential item in your life then mitigating circumstances might prevail.

    Will I be able to keep my car?

    Ordinarily, cars with a value of under £1,000 can be kept. Any vehicle that has a value of more than £1,000 may be taken. It will be up to you to prove that it is essential to your domestic and professional life. However, even if you build a case for the vehicle, the receiver can sanction the sale of that vehicle to raise funds if they are able to provide you with a replacement vehicle that suits your basic needs.

    Will bankruptcy affect my job?

    Going bankrupt will usually have no effect on your employment. However, there are some roles that may not like the idea of their employee going through bankruptcy. These include positions where:

    • You’re working in a role that involves finances (bank) and your employer is unwilling to carry on employing you because of bankruptcy. 
    • You’re working in a role that needs you to be licensed or registered (law, accountancy, banking), and going bankrupt may affect those terms.
    • You’re an insolvency practitioner.
    • You’re a licensed worker in the gambling industry (dealer, croupier), and going bankrupt would revoke those licenses, although you may be able to work something out with the Gambling Commission at a later date.

    You might not lose your job but bankruptcy could cause more problems later down the line. The civil service, the police, and security firms may be reluctant to employ. Outside of those groups, an employer may still want to impose restrictions on what you can do within the workplace, especially if you’re working in financial services.

    What are the long-term effects of bankruptcy?

    Once your bankruptcy has been discharged, it will then stay on your credit file for the next five years. During this time, you will find it harder to obtain credit and if you do, interest rates will be higher. 

    You might also find it challenging to open a standard current account – especially one with an overdraft. In this case, you may find it easier and more beneficial to open up a basic bank account that could help you until you have rebuilt a healthy credit rating.

    © 2021 Bankruptcy Information Centre . Insolvency Support Group is a company incorporated in England and Wales, with company number 13563644 and having its registered office at Ribble Court 1 Mead Way, Padiham, Burnley, England, BB12 7NG. Data Protection Act with the Information Commissioner’s Office (the, “ICO”). ICO Fee Payer Register Number: ZB168656

    To propose an IVA, Trust Deed or Sequestration to your creditors you will need to instruct/engage a licenced Insolvency Practitioner (IP).

    Our Insolvency Practitioner for the Insolvency Support Group is Lorna Bingham who is licenced to act in the UK by the Institute of Chartered Accountants of Scotland – Licence no. 498 Any advice will be given in reasonable contemplation of the appointment of Lorna Bingham as your IP.

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