Bankruptcy is a process where an individual formally declares they are unable to pay their creditors. Previously, in England and Wales, an application for bankruptcy had to be made via the courts but since April 2016, this can only be done on-line, so the courts are not involved in any debtor bankruptcy applications. The application process is different in Northern Ireland (see below).
Applications must be submitted online via the central UK Government website, GOV.UK, to an adjudicator within the Insolvency Service who will determine the application. The application must be submitted by the bankruptcy applicant and not by an adviser or any other person who may have assisted in the completion of an application. If an application is approved, a bankruptcy order will be sent to the Official Receiver who will take control of all of your assets and, if appropriate, manage the payments to your creditors through the sale or disposal of these assets.
In Northern Ireland, you are required to complete a bankruptcy petition form and a statement of affairs and take these to the High Court. These forms are available on-line. You must then swear an affidavit before a solicitor stating that the information you are giving the court is true, for which there is a fee (see below). For further information, go to CitizensAdvice.org.uk and click on the ‘Debt and money’ link.
Most debts that you have when a bankruptcy order is made will be covered by your bankruptcy. This means they will automatically be written off at the end of the bankruptcy period.
However, not all types of debt are written off. The people you owe these debts to can still take action to get their money back. This means that before you apply for bankruptcy you should work out how you’ll deal with any debts that aren’t covered.
Debts that aren’t automatically written off include the following:
• magistrates court fines
• any payments a court has ordered you to make under a confiscation order, for example, for drug trafficking
• maintenance payments and child support payments, including any lump sum orders and costs that have arisen from family proceedings, although you may be able to ask the court to order that you don’t have to pay this debt
• student loans
• secured loans and other secured debts, such as debts secured with a charging order
• debts you owe because of the personal injury or death of another person, although you may be able to ask the court to order that you don’t have to pay this debt
• social fund loans
• some benefits and tax credits overpayments.
The main advantage is that normally, bankruptcy lasts for one year, after which time you will be debt free. In some cases, your spare income can be used to help pay your debts. This arrangement can last for three years and is known as either an Income Payments Order or Income Payments Agreement.
In certain cases Bankruptcy may be a suitable option but there are alternatives that may also be suitable including the Debt Relief Order.
There are significant consequences of opting to take a bankruptcy route as you will lose control of your assets can lose your home. It will have a significant impact on your credit rating as Bankruptcy will be recorded with credit reference agencies for between 6 and 15 years depending on circumstances. Any future loan or mortgage application is likely to ask for any previous bankruptcies to be declared.
If you are self-employed, bankruptcy will mean the closure of your business with restrictions on future self-employment whilst in bankruptcy –
• you must not borrow more than £500 without telling the lender you are bankrupt
• you must not create, manage or promote a company without the Official Receiver’s permission
• you must not manage a business without telling those you do business with you are bankrupt
• you cannot act as a director of a company
It can also affect you if you are an employee. For instance, you cannot be a solicitor, the Trustee of a Charity, or undertake a role regulated by the Financial Conduct Authority. You should check your contract of employment or with your HR department before applying for bankruptcy.
There are costs attached to Bankruptcy. Currently, the total cost is £680 in England and Wales. This is made up of an adjudicator fee of £130 and a bankruptcy deposit of £550. In Northern Ireland, the total cost is £647 – £525 deposit, £115 adjudicator fee plus a solicitor’s fee of £7 for the sworn affidavit. The deposit can be paid on-line by debit, credit or pre-paid card (via the ‘Make a payment’ button within the on-line application form) or by cash at any Royal Bank of Scotland branch. There is no fee remission available under the new on-line application process, but it is possible to pay by instalments (minimum £5 per payment). However, this only applies to card payments made on-line In England and Wales.
All information regarding your financial affairs, including details of any assets you hold such as property and pension plans, will have to be disclosed, and it may be necessary to attend an interview with the official receiver.
You should also be aware that an individual creditor can petition to have you made bankrupt, providing that you owe them at least £5000, and that such petitions will continue to be heard at court.
All other options should be explored and considered before considering Bankruptcy but this can be the best solution dependent on circumstances. If you are considering this option, we recommend that you visit the GOV.UK website and search under ‘Options for dealing with your debts’. This will take you to a page that requires you to complete a decision tree which will help you decide if bankruptcy is the right option for you. Northern Ireland residents should visit www.nidirect.gov.uk/articles/what-happens-when-you-become-bankrupt.
Need more information? Call 08000 114 999 to Click Here to contact one of our friendly advisors for a confidential chat.