A Guide To Bankruptcy

A Guide To BankruptcyA Guide To Bankruptcy

What is bankruptcy?

Bankruptcy is a legal status that usually lasts for one year. It can be a way of clearing your debts if you do not have the funds to do so. When you are declared bankrupt, your excess income and non essential assets are used to pay back the people to whom you owe money such as credit card companies and other lenders. When you come to the end of your bankruptcy period, debts will usually have been cancelled.

How do you become bankrupt?

A court can declare you bankrupt once it has been presented with a bankruptcy petition. A court can then issue a ‘bankruptcy order’. A bankruptcy petition can be filed in one of two ways:

  • By you – Download a debtor’s petition from the Insolvency Service website or from your nearest county court – when completed, take it to your nearest county court with bankruptcy jurisdiction. A fee of £125 is payable but can be waived if you meet certain criteria. At the same time you must also pay a £345 fee for the Official Receiver’s work.
  • By a creditor – A creditor can issue a creditor’s petition if you owe them an unsecured debt of more than £750. You must fully cooperate even if you do not agree with the terms of the creditor’s petition – if this happens, you should try to reach a settlement before the petition is heard otherwise it can be tricky and expensive to change.

Who organises your bankruptcy?

Bankruptcy is organised by either an Official Receiver or an Insolvency Practitioner depending on your circumstances.

  • Official Receiver – The Official Receiver acts to protect your assets or as trustee of your bankruptcy if you have no assets.
  • Insolvency Practitioner – If you do have assets, an Insolvency Practitioner will act for you and sell them in order to pay back your creditors.

How will bankruptcy affect you?

Once you are declared bankrupt you have no control over your assets – they will be sold to pay off your debts. However, certain items do not count as assets; these include equipment you need for work and household items needed by you and your family such as bedding and furniture. Your income will be scrutinised by the Official Receiver in order to decide how much you should pay to your creditors and you may be asked to sign an ‘income payments agreement’ which lasts for three years. Any commitments like rent or debts incurred after being declared bankrupt remain your responsibility.

When you are declared bankrupt you must obey the following:

  • Give the Official Receiver all your financial details
  • Hand over all assets and relevant paperwork, such as bank statements
  • Inform your Official Receiver or Insolvency Practitioner of any new assets acquired during your bankruptcy
  • Stop using credit cards and your bank or building society account
  • You must not obtain credit of more than £500 without telling the creditor of your bankruptcy status
  • You may not make payments directly to your creditors
  • You may have to explain to a court how you came to be in so much debt
  • If you own your home it may have to be sold to go towards paying your debts
  • If you are self employed your business is usually closed down

How long does bankruptcy last?

You will normally be discharged from bankruptcy after 12 months.

Alternatives to Bankruptcy

Bankruptcy should only be used as a last resort and is usually for people with debts of more than £20,000. Alternatives to bankruptcy include:

For FREE and impartial debt advice, fill in the debt advice enquiry form and a qualified advisor will assess your individual sitaution and call you back to help you work out the best course of action.