Bankruptcy

What is Bankruptcy?

Bankruptcy is a form of insolvency that allows you to deal with debts you can no longer manage. It may be suitable if you have minimal assets and after taking into account your costs of living, there is little or no spare money to pay towards your creditors. Bankruptcy of all of the statutory debt solutions available to people, has long held a certain stigma and this stigma has prevented people from opting for bankruptcy. However, in some circumstances it is the most appropriate solution and should be considered. If you wish to make yourself bankrupt, you must apply online. There is no minimum amount of debt you have to owe before you can apply for bankruptcy. Go to www.gov.uk and search for ‘apply for bankruptcy’. Please do take care completing your petition for bankruptcy. If you make false statements on the form or you do not tell the truth about your property, this is a criminal offence and you could be fined or sent to prison. Creditors can also make you bankrupt but only if there debt exceeds £5,000. This has increased and used to be debt of only £750. The fee a creditor has to pay to petition for your bankruptcy includes a deposit of £1,500, court fee of £302 and also they are likely to have legal fees which could exceed £1,000. 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 and then aim 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.

Alternatives to Bankruptcy

If you are running a business please visit Bankruptcy and your Business. If you want to continue to trade but have unmanageable debts, an Individual Voluntary Arrangement (IVA) can allow you to retain your assets while continuing to trade and making affordable monthly contributions to your creditors. If you have unsecured debts of less than £30,000, a Debt Relief Order (DRO) might be a more suitable option for you. To qualify for a DRO you must not own a home, have savings or own assets that are individually worth more than £2,000. You must also have £75 or less disposable income each month. The cost of a DRO is much less than Bankruptcy at only £90. If you believe you financial problems are temporary and perhaps only need to deal with personal debts, a debt management plan could be more suitable.

Is Bankruptcy suitable for me?

Bankruptcy may be suitable for you if you are no longer trading or if your trading does not require you to incur any credit beyond £500. Bankruptcy can provide a fresh start especially if you cannot afford to make monthly contributions to your unsecured creditors and you have 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 in Bankruptcy “TIB” as your discharge can be suspended). A TIB has the responsibility to turn your business and personal assets (that are not exempt) 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 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 which 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, 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. If you live in Scotland, the solutions are different, please visit Scottish Debt Solutions.

How will Bankruptcy affect me?

If you are self employed, bankruptcy could seriously hamper your ability to trade and threaten your personal and business assets. Your details will be on a searchable register, Individual Insolvency Register for a period of 6 years and will affect your credit rating which can affect your ability to obtain credit in the ordinary course of business. Other points to seriously consider:- Assets you own which are not excluded from bankruptcy will have to be sold and the funds paid into your bankruptcy. This includes assets of your business, shares in a limited company or LLP, monies owed to you, any equity you own in a property or your car where the value is above £1,000 unless it has been specially adapted. 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 this is likely to prevent you from accessing credit. You will be unable to get credit of £500.00 or more without telling the lender that you are bankrupt. This lasts for the time you are Bankrupt which is normally 12 months unless your discharge is suspended.