Bankruptcy Information

Bankruptcy

I'm really struggling with debt. What does Bankruptcy involve and should I really consider it?
If you find yourself in a position where it is impossible to repay your debts, you can file for bankruptcy.

Bankruptcy is a serious step to take, and there are alternative solutions with dealing with debt. If you are considering bankruptcy you should take advice from your local Citizens Advice Bureau (or similar organisation) or an insolvency practitioner.

The majority of your assets are handed over to a trustee, who controls them from that moment onwards. The trustee might be an official receiver (a civil servant and court official) or a licensed insolvency practitioner. In the initial stages of your bankruptcy you will deal with the official receiver

Their job is to find out as much as possible about what you own and what you owe, and then to make sure the people or companies to whom you owe money are repaid. You are then protected from your creditors, who can no longer pursue you for payment. You might have to make a monthly contribution to your debts, but that will be based on what you can afford.

You'll have to pay a deposit of £310 and a court fee of £140 (although in some circumstances the court will waive this fee, for example if you are on Income Support) become bankrupt, so it isn't a cheap option.

But after that you start with a clean slate?

Sort of. Your debts are effectively written off after bankruptcy, so this generally brings enormous relief. But it is not a decision to be taken lightly. Getting a mortgage, loan or any other credit in future , may be tough.

Does bankruptcy last forever?

No.

Most bankrupts will be automatically discharged after a maximum of 12 months, rather than two or three years as was formerly the case. But a new regime of Bankruptcy Restrictions Orders (BRO) will impose tougher restrictions to protect the public and the commercial community from those whose conduct has been irresponsible or reckless.

In cases where conduct is found to be reckless, culpable or irresponsible, a BRO will last for between two and 15 years. For all bankrupts there are restrictions on obtaining credit of more than £500 without disclosing their status, trading in a name other than the one in which the bankruptcy order was made and acting as a director, during the period of their bankruptcy. For those subject to a BRO these restrictions will apply for the duration of the order.

But after that period you're debt-free?

Yes, although discharge doesn't necessarily happen automatically. The courts can decide to postpone it if you do not co-operate with the official receiver or your trustee. Even after discharge, a record of your bankruptcy will be kept on your credit file by commercial credit reference agencies for the next six years, and during that time getting any sort of credit could be difficult.

Many of the irrelevant and outdated restrictions that currently apply to bankrupts and prevent them from holding certain offices are being removed. However, bankruptcy may affect a person's ability to work in certain professions and you cannot act as a company director without leave of the court.

I own more than I owe, so can I just hand over assets to the value of my debts and keep the rest?

Well, the new regulations do include a method of repaying debts from the bankrupt person's income which does not require a court order, but that will still last for three years.

And there is a fast-track voluntary arrangement system, which will mean a bankruptcy order can be annulled in return for greater or quicker payments to creditors.

But when it comes down to it, bankrupts still risk having most of their assets sold for the benefit of creditors. That means you may have to give up your car if you don't use it for work, any expensive jewellery ...

Oh dear. Still, whatever happens, they can't take my home, can they?

I'm afraid they can. If you own your home, the official receiver can sell it off to go towards paying your debts. If you have a mortgage and can't meet the payments, the lender might be allowed to sell your home.

If you have a partner or a spouse, they will be encouraged to buy your half of the equity in the property from the receiver. But if they can't do that the trustee will have three years to deal with your home.

If you rent your home, the receiver clearly cannot repossess, since the property is not yours. However, they can tell your landlord that you are bankrupt.

I've been paying into a pension for a few years now. They can't touch that, can they?

A trustee cannot usually claim a pension as an asset if your bankruptcy petition was presented on or after 29 May 2000, as long as the pension scheme has been approved by the Inland Revenue.