Bankruptcy – is it right for me?

What is Bankruptcy

Bankruptcy is a formal insolvency procedure that while freeing you from the burden of debt, can have long-lasting affects and implications. Bankruptcy should not be entered into without serious consideration.

Bankruptcy may be suitable when existing debts far outweigh your income and assets, with little prospect of paying it back within a reasonable timescale.

After Bankruptcy your debts are written off, however being Bankrupt may negatively affect your long-term financial plans. You may lose control of valuable assets, and be required to make contributions from your income for up to three years.

How To Become Bankrupt

You can become bankrupt by 3 routes; by creditor petition should you owe that creditor £5,000 or more; by IVA supervisor should that agreement fail; and finally by applying yourself.

Applying For Your Own bankruptcy

You can petition for bankruptcy online. You will need to submit details of your current financial circumstances inclusive of income, expenditure and debts. Your application will then be reviewed by an adjudicator who decides if you should be made bankrupt or not.

If you are considering doing this yourself we strongly advise getting professional legal and financial advice beforehand.

Bankruptcy Costs

To apply for your own bankruptcy there are fees payable to the Insolvency Serivce.

These total £680 and comprise of a £130 adjudicator fee and a £550 Official Receiver’s fee.

Important Information

Considerations to be taken into account about before applying for or allowing yourself to be made bankrupt.

Impact on credit rating

The bankruptcy order would show on your credit report for a minimum of six years from the date of bankruptcy order.

While bankrupt you must disclose this status when applying for credit of £500 or more, including ordering goods on credit.

Even after your bankruptcy has been discharged, organisations might refuse to give you credit or other financial services simply because you have been bankrupt in the past.

If you do manage to find someone who will lend to you, they may charge you a higher interest rate as they will see you as a high-risk customer.

Some mortgage lenders ask if you have ever been bankrupt, so your bankruptcy could affect your creditworthiness long after the information has been removed from your credit report.

Not private

Your Bankruptcy would be a matter of public record. It is entered in the Individual Insolvency Register and is advertised in The Gazette – the official Government publication for public notices.

As a condition of a new job or tenancy or any type of vetting, a potential employer or landlord my view the ‘public’ information on your credit report, such as court judgments and bankruptcy orders.

Payments from Income

Subject to affordability – you may be required to make payments from income for 36 months towards the bankruptcy.

How long bankruptcy lasts

In most cases you will cease to be bankrupt, referred to as being ‘discharged’, after 12 months.

However, the discharge can be extended (potentially up to 15 years) if you fail to cooperate in the bankruptcy proceedings or are deemed to have acted in a dishonest or blameworthy way.

Joint Debts in Bankruptcy.

A joint debt is where two or more parties are named on the credit agreement. If any of your debts are in joint names with someone else who isn’t bankrupt, the debts won’t be written off, but you won’t have to pay them.

This means any joint debts would become debts in the other person’s name only and they’d be responsible for paying off the remaining amount of the debt in full.

Debts excluded from bankruptcy

The following debts are not cleared by bankruptcy.

• Child maintenance arrears, if the arrangement was set by the CSA or Child Maintenance Service.
• Criminal fines, compensation orders and victim surcharges from a magistrates’ court or Crown Court.
• Debts you take out after the date of your bankruptcy order.
• Debts taken out fraudulently, for example benefit fraud.
• Mortgages and other debts secured against your home, if you want to keep the house.
• Social Fund loans.
• Student loans.
• TV Licence arrears.
• Court orders telling you to pay compensation to someone for personal injury.
• Payments ordered by a court as part of family proceedings, for example in divorce cases.

Apart from a few other rare exceptions, all other debts will be written off by bankruptcy.

Loss Of Assets

You can lose assets of value including your home or your share in it if jointly owned.

Anything of worth which can easily by sold to raise money to pay into the bankruptcy could be taken from you.

Impact On Business Affairs

Any business you solely own will very likely be closed down or an assessment made as to whether it could be sold to raise funds to pay into the bankruptcy.

You may not be, or act as, the director of a limited company or be directly or indirectly involved in the formation, running and management of a limited company – without the permission of the court.

If you are self-employed you will be able to continue to trade but subject to certain restrictions.

Impact On Employment

In some jobs, a record of bankruptcy may lead to dismissal, demotion or other issues.

Your employer or any potential employer may be unwilling to employ someone who has been bankrupt in a role of responsibility involving finance or the handling of money. Some professional membership bodies don’t allow undischarged bankrupts to remain members.