Going Bankrupt is a serious undertaking and one that hopefully you will only have to contemplate once in your life…
If you are considering going bankrupt it is important you get as much information as possible to help make the right decision for you. However before you take any action it is strongly recommended you seek professional advice – contact us now for a free initial consultation with a bankruptcy specialist.
- What Does Going Bankrupt Mean
- Going Bankrupt Pros and Cons
- Cost of Going Bankrupt
- Going Bankrupt on Benefits
- Help Going Bankrupt
- Going Bankrupt in the UK
- Consequences of Going Bankrupt
- Going Bankrupt Twice
Bankruptcy is one way of dealing with debts you cannot pay, it is a formal legal arrangement designed to return your creditors (people you owe money to) as much as possible in as short a time as possible, whilst at the same time releasing you from your debts as quickly as possible.
The amount your creditors will receive is based largely on the assets you have e.g. property (including your home if you own it), cars or other vehicles, savings, and anything else you own that could be sold (generally items that are realistically worth £2,500 or more). After going bankrupt your assets will be handed over to a person appointed to manage your bankruptcy called a ‘trustee’. The trustee will be either a Licensed Insolvency Practitioner or more usually a government official called The Official Receiver.
Bankruptcy gives you a lot of protection from your creditors, but it also comes with a number of restrictions that you will be subject to until the bankruptcy is completed and you are discharged (or freed) from the bankruptcy, normally after a period of 12 months. Back to top of page>
No two bankruptcy proceedings are identical and so the pros and cons of bankruptcy vary from one individual to another, depending on their own personal circumstances. That said it is possible to make some broad general statements on what the likely pros and cons of going bankrupt will be for most individuals. Back to top of page>
- In most cases all unsecured debts will be written off, and creditors will be unable to take any further action against you in relation to those debts.
- Your bankruptcy will usually be over in just one year.
- In theory you are free to obtain credit of up to £500 even whilst bankrupt.
- If you have no significant assets then in most cases your day-to-day life will be largely unaffected.
- In theory you can handle your own bankruptcy without any legal or professional help.
- If you are a homeowner with significant equity you may be able to protect your home by selling your share of the property to your spouse, partner or a relative after any debts secured on it have been paid.
- Your bankruptcy is public knowledge and will be entered on the public register.
- Even if you handle your own bankruptcy, without the help of a professional then in most cases you will still be liable for some significant costs – see Cost of Going Bankrupt below.
- Certain debts cannot be included when going bankrupt:
- Student loans
- Court fines
- Debts from family proceedings e.g. child support
- Social fund crisis loans or budgeting loans
- Secured debts
- If you have any debts where a third party has acted as guarantor then they may be pursued for the total balance of your debt after going bankrupt.
- You will lose control of any assets (usually over £2,500) including but not limited to:
- Property (including your home)
- Cars or other vehicles
- Holiday homes or caravans
- If you have a business then it may be closed down (if you have a business and are considering bankruptcy then you should almost certainly seek professional advice – contact us now for a free initial consultation with a bankruptcy specialist)
- Your employment may be affected and certain professions are barred if they are made bankrupt, if you are in one of the following occupations then your should seek professional advice before considering bankruptcy – contact us now for a free initial consultation with a bankruptcy specialist.
- Company director
- Solicitor or employed within a Solicitor’s Practice
- Accountant or employed within an Accountancy Practice
- Justice of the Peace
- Member of Parliament
- Member of a Local Authority
- Member of the Armed Forces
- Police Officer
- Employee of a Bank or employed within the Financial Services industry
- Senior manager in a business
- It is an offence to obtain credit of more than £500 whilst bankrupt
- If the Official Receiver discovers you are going bankrupt as a result of acting irresponsibly, recklessly or dishonestly, or you are deemed to have acted in such a manner during the bankruptcy, then you may be liable to a Restrictions Order for up to 15 years after your bankruptcy – which in effect may mean the bankruptcy lasts for that full period.
Aside from any professional services fees incurred during your bankruptcy proceedings everybody going bankrupt, even if they handle everything themselves, is liable for certain costs and will not be able to go bankrupt until these costs are paid in full:
- Official Receiver’s fee £525; to contribute to the cost of managing your bankruptcy
- Court fees £175; in certain circumstances you may be eligible for a reduction of court fees – see Going Bankrupt on Benefits below for more information.
- Professional fees can vary but will generally be from £500 though some providers may charge in excess of £1,000 – contact us now for a free initial consultation with a bankruptcy specialist and a guaranteed fixed price quote.
Even if you are on benefits you will still be liable for the Official Receiver’s fee of £525, along with any professional fees incurred, however if you are in receipt of Income Support then you may be eligible for a reduction in the Bankruptcy Court Fees of £175 – contact us now for a free initial consultation with a bankruptcy specialist to find out if you qualify for a reduction of fees. >Back to top of page>
There are a number of charities who will offer help to cover the costs of going bankrupt, each has its own qualifying criteria for who they will and will not help, and given the state of the economy since the credit crunch and resulting recessions, most are over subscribed. >Back to top of page>
Given the serious nature of going bankrupt and the potentially devastating impact of a poorly handled bankruptcy it is it highly recommended that you seek the advice of a professional before even considering it as an option – contact us now for a free, confidential, initial consultation with a bankruptcy specialist who will assess if you qualify for bankruptcy. Back to top of page>
The process for Going bankrupt in the UK varies dependant upon the region you are in. Back to top of page>
In England going bankrupt involves an application to the court which anyone can make including individuals, sole traders and members of a partnership. This is referred to as petitioning the court for bankruptcy. In the case of companies and partnerships themselves different rules apply.
It is only the court can make an individual bankrupt, and not all courts handle bankruptcy cases. Either the individual themselves, or one of their creditors (your creditors are the people you owe money to, and only if you owe £750 or more) can petition the court.
Going bankrupt is a public process, The Official Receiver uses official publications like the ‘London Gazette’ and Individual Insolvency Register to advertise your bankruptcy in order that credit reference agencies like Experian and Equifax can update your credit file to show you are insolvent and have entered into bankruptcy. In addition your bank, landlord and mortgage, pension or insurance provider will be told of your bankruptcy, and in some circumstances your employer may be aware of you going bankrupt. Back to top of page>
Scottish insolvency law differs from English insolvency law considerably, in Scotland. So much so that personal bankruptcy is call Sequestration in Scotland. The Scottish Government has its own official agency that is responsible for administering personal bankruptcy, similar to The Official Receiver in England, call the Accountant in Bankruptcy (AiB) – see AiB.gov.uk for further information. Back to top of page>
English Insolvency law applies in Wales and so the process is the same in England and Wales. Back to top of page>
The procedures for going bankrupt in Northern Ireland are largely similar to the bankruptcy procedures in England, though there are some subtle differences and so professionals and Insolvency Practitioners who handle bankruptcies in Northern Ireland need to be specialists in the region and authorised to do so – see NIDirect.gov.uk for further information. Back to top of page>
As mentioned earlier on this page going bankrupt brings with it certain restrictions on what you can and cannot do, for example it is an offence to:
- Borrow more than £500 without telling the lender you are bankrupt
- Act as the director of a company
- Create, manage or promote a company without the court’s permission
- Manage a business without telling those you do business with you are bankrupt
This is not an exhaustive list, but it is important to note that breaking any of these restrictions is a criminal offence, and The Insolvency Service has a dedicated enforcement hotline (0845 601 3546).
Going bankrupt also means surrendering any assets to your trustee (an licensed Insolvency Practitioner or more usually a Government Official called The Official Receiver). You must co-operate with The Official Receiver and provide information on all your assets and debts, remember failure to cooperate could in itself be an offence.
As well as the assets listed in the Cons of Going Bankrupt section of this page there are some further important implications of going bankrupt when it comes to any assets you have. Back to top of page>
Unless their value is considerably more than the cost of a reasonable replacement in most cases you will be able to keep:
- Equipment and/or material involved in your employment, business or vocation – for example, work tools, books or vehicles
- Items you and/or your family need day-to-day or around the home – for example, clothing, bedding, furniture or household equipment
If you own your home when going bankrupt your trustee will retain:
- Your share of the property’s value after any secured debts (like mortgages and loans) have been repaid – this is referred to as ‘The Beneficial Interest’
- If you are the sole owner of your home your Trustee will be given the legal title – this is the document showing who the legal owner is
- Even once your bankruptcy is completed, and you are discharged your trustee can keep these rights over your home for up to 3 years after the start date of your bankruptcy, and in some cases even longer, for example
- the court has ordered you to sell your home
- you have a financial interest in property that was not disclosed to your Trustee when going bankrupt
- If the court orders you to sell your home you may still be able to stop or at least delay the sale if
- your share of any equity is less than £1,000
- the court can be convinced that there are exceptional circumstances in your case
- your share of equity or legal title can be transferred to someone else – for example, a partner relative or friend
- where childrens welfare is concerned you may be able to delay the sale up to a year
- Should your Trustee feel that you have disposed of property for less than a fair value or the disposal was unfair to your creditors in some other way then they can apply to the court for an order restoring a property to them.
- Your Trustee will also have a claim on any property you inherit or obtain while you are bankrupt.
Any pension you have is usually safe, though it is still an asset and so the Trustee can claim your pension as an asset and use it to repay your creditors. In addition your pension may be subject to a ‘forfeiture clause’ especially if it is an occupational pension. This clause means that when going bankrupt you automatically lose any rights and benefits to the pension. Back to top of page >
If you have a disposable income of over £20 per month e.g. after paying reasonable living expenses you have £20 or more left over then your Trustee may apply for an Income Payments Order. In which case you will be required to make payments for a period of up to 3 years from the date of going bankrupt. Failure to make these payments may result in court action. Back to top of page >
As a result of going bankrupt your bank and building society accounts are frozen and all cards and cheque books must be handed over to the Official Receiver. Back to top of page >
If you go bankrupt it is noted on your credit file, and it will remain there for 6 years from the date of going bankrupt, and so even once you have been discharged from your bankruptcy you may find it difficult to obtain credit as lenders will see that you have been bankrupt when they do a credit search. In addition when applying for certain types of credit in the future you may be asked if you have ever been the subject of bankruptcy proceedings.
Therefore it is vital that you consider the implications of going bankrupt seriously, and that you ensure the process is completed correctly – contact us now for a free initial consultation with a bankruptcy specialist to see how the bankruptcy restrictions may affect you. Back to top of page >
There are no restrictions to you going bankrupt for a second time, however if The Official Receiver feels that you have acted dishonestly or carelessly they may extend the restrictions of bankruptcy for up to 15 years. Examples of what may be considered dishonest or careless behaviour is:
- Going bankrupt twice within a six year period
- Disposing of any assets for less than their real value
- Providing false information to get credit – for example, not telling the truth on an application form for a credit card, loan or finance
- Irresponsible borrowing e.g. taking on debts you knew you could not repay