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Guide to Bankruptcy

What is Bankruptcy

 

If you are struggling with debt, bankruptcy is an option to become debt free.

This guide covers bankruptcy in England and Wales.  The process to become bankrupt is different if you live in  Scotland and Northern Ireland.

 

What Is Bankruptcy?

Bankruptcy is a legal status for people who are unable to repay the money they owe to write-off some or all of their debts. Some debts cannot be included.

The bankruptcy period usually lasts 12 months.

You can only be made bankrupt if you have debts over £5,000.

You might be able to declare yourself bankrupt if you cannot pay your debts and the amount you owe is more than the value of the things you own.

If you have any assets, they’ll be assessed to see if they can be used to pay off your debts.

Bankruptcy is usually considered as a  last resort.  For instance you may consider a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA) first.

 

Click for infographic - Bankruptcy

 

How Can Bankruptcy Happen?

There are three ways in which you can be made bankrupt:

  1. You can declare bankruptcy yourself, if you cannot pay what you owe.
  2. A creditor can apply to make you bankrupt if you owe at least £5000.
  3. An insolvency practitioner can make you bankrupt if you break the terms of an individual voluntary agreement (IVA)

 

Pros of Bankruptcy

  • Your unsecured debts will be written off, giving you a fresh start
  • Your creditors cannot take any further legal action against you to recover your debts
  • Creditors have to stop demanding payment, charging interest and adding other charges
  • You will not receive any further contact from your creditors

 

Cons of Bankruptcy

  • Assets such as your home, vehicle and valuable possessions may be included in your bankruptcy.
  • You might find it more difficult to get a job in certain industries, such as legal and financial.
  • Your bank accounts may be closed.
  • Bankruptcy will appear on your credit file  for six years.
  • Your bankruptcy will be part of the public record.  recorded on a public register

 

Check if Bankruptcy is Right For You

If you are thinking of applying for bankruptcy, you should first speak to a debt adviser to make sure it is right for you.

To decide if bankruptcy is right for you, check:

  • what you’ll have to pay
  • which debts are covered by bankruptcy
  • how bankruptcy might affect things like your home, belongings and bills
  • how you dealt with your debts before going bankrupt

Read Next: Where to Find Free Debt Advice in the UK

 

Declare Yourself Bankrupt

Application Fee

It costs £680 to apply for bankruptcy.  You can pay in instalments, but you will need to pay the whole amount before you submit your bankruptcy application.

If you’re struggling to raise the bankruptcy application fee, you might be able to apply for a grant or get help from a charity.

 

The Application

To apply for bankruptcy in England and Wales you must complete an online application and create an online account.

You must provide information about your:

  • debts
  • employment/income
  • pension
  • bank accounts
  • assets
  • outgoings.

In addition include any letters you have received from bailiffs or enforcement agents.

 

The Decision

An Official Adjudicator from the Insolvency Service will review your application and decide if you will be made bankrupt.  You should get a decision within 28 days.

 

Interview with the Official Receiver

If your bankruptcy is approved, you will have an interview with the official receiver, which you must attend.  If you do not attend the interview, your bankruptcy could be extended beyond the usual 12 months and you could face court.

If you have applied for bankruptcy yourself,  your interview might happen directly after the bankruptcy order is made. Alternatively, your letter from the official receiver may invite you to an interview either in person or by telephone.

If you have been made bankrupt by one of your creditors,  the official receiver may also contact you by telephone to find out if there is anything that needs to be sorted out urgently.

Within 8 to 12 weeks after the interview, the official receiver will send a report to your creditors showing your assets and debts.

They will also report to the insolvency Service if they think you might have broken the law in your financial dealings.

 

How Your Creditors Are Paid

It is the job of the official receiver or the trustee (insolvency practitioner) to determine who the creditors are, and when and how they will be paid.

Once the official receiver or trustee has details of the bankrupt’s creditors, they will write to the creditors, asking them for confirmation that they are a creditor. Creditors then complete a proof of debt form, giving details of their debt and, if required, supply evidence to support that debt.

The official receiver or insolvency practitioner (trustee) will take control of your assets, and sell them to repay your debts.

There is a statutory order which determines the order in which your creditors will get paid.

If you have assets, money from the sale of these will be used to pay the costs of the bankruptcy process before creditors are paid.

Official Receiver Fees

If your case is administered by the official receiver the following fees will all be deducted from the money realised:

  • an administration fee of £1,990 if you applied for your own bankruptcy or £2,775 if someone else applied
  • a general fee of £6,000
  • 15% of the total value of assets realised
  • a fee charged at an hourly rate where money is paid to creditors (known as a ‘distribution’ fee)

If there are insufficient assets in your case the official receiver will still process your bankruptcy.

Next, money will be used for:

  • certain debts in relation to employees, if you had any
  • your other creditors
  • interest on all debts

Any money left over will be returned to you.

If everyone is paid in full (including the fees referred to above and interest on the debts) you can apply to have your bankruptcy cancelled (annulled).

Insolvency Practitioner Fees

If your bankruptcy is being handled by an insolvency practitioner then the administration and the general fees will still be charged, but they will charge their own schedule of fees rather than the asset realisation and distribution fees that the official receiver would charge. You should ask them how much it will cost to administer your case.

 

Assets That Cannot Be Sold

There are some belongings the official receiver cannot sell.  You can usually keep the following exempt items:

  • clothes
  • bedding
  • furniture
  • household equipment, such as a cooker
  • tools and equipment for your job – if you use them yourself rather than lend them to someone else
  • a car or other vehicle you need for work or your basic needs – for example, if you’re disabled and can’t go anywhere without a car
  • a car or other vehicle you need to care for a dependant
  • other belongings that are necessary for your basic family needs

Restrictions during bankruptcy

There are some important rules about what you can and cannot do once you’ve gone bankrupt. These are known as ‘restrictions’.

What are bankruptcy restrictions?

The restrictions that are most likely to affect you during bankruptcy:

  • You cannot borrow more than £500 without telling the person or company lending you the money that you’re bankrupt
  • You cannot be the director of a limited company, and you can’t play a part in running a company without a court’s permission
  • You cannot buy a house under the ‘right to buy’ scheme
  • If you are self-employed, you cannot use a business name which is different to the one you used before bankruptcy, unless you tell everyone you do business with about the bankruptcy
  • You will be barred from some jobs, for example being a charity trustee, insolvency practitioner, registrar or consumer credit licence holder
  • If you help another vulnerable person manage their property and affairs using a power of attorney, this will be cancelled
  • You must cooperate with the official receiver. This includes handing over all documents and providing accurate information about your income, debts and assets

How long do bankruptcy restrictions last?

Usually restrictions will stop when you are discharged after 12 months.

However, if the official receiver finds that your bankruptcy happened because you acted irresponsibly or dishonestly, they can extend the length of time that restrictions apply. This is called a bankruptcy restriction undertaking or order, and can last up to 15 years.

 

Who Will See That I Am Bankrupt?

A number of organisations and third parties can be told about your bankruptcy, including:

  • Your creditors, banks and building societies
  • Your utility suppliers (e.g. energy, water and gas)
  • Professional bodies that you’re a member of
  • Your local authority and Citizen’s Advice Bureau
  • Your landlord

 

The Public Record

Your bankruptcy will be published on 2 government websites that list people who have gone bankrupt. The websites are called the Insolvency Register and the Gazette.

  • Notice of your bankruptcy, which is permanently recorded in the Gazette but excluded from search engine results one year and three months after publication
  • Individual Insolvency Register which will be removed within three months of your discharge

The websites usually include your name and address. If you’re worried someone will hurt you or your family, you can apply for your address to be hidden when you apply for bankruptcy.

You can:

Your bankruptcy won’t be published in a newspaper, unless there’s been a high level of public concern or complaint about your financial conduct.

 

 

What Happens When I Am Discharged From Bankruptcy?

Your debts are written off and the restrictions placed on you during your bankruptcy are usually lifted. If your bankruptcy was caused by dishonest or reckless behaviour, the official receiver can extend the bankruptcy restrictions through a bankruptcy restriction undertaking (BRU) or order (BRO). This can last up to 15 years.

The record of your bankruptcy stays on the Insolvency Register (England and Wales) or Bankruptcy Register (Northern Ireland) for a further three months after you’re discharged, or longer if you have a BRU or BRO.

You may still have to make payments towards your bankruptcy, the official receiver will decide if you have to do so.

You will be freed from bankruptcy (discharged) after 12 months. This ends the bankruptcy restrictions and releases you from most of the debts you had when the bankruptcy order was made.

You’ll normally be discharged automatically, even if:

  • no payments have been made to your creditors
  • you’re still paying an IPA or IPO
  • some assets haven’t been sold yet

Assets you had during bankruptcy can still be used to pay your debts once your bankruptcy has ended.

Your bankruptcy can be extended for longer than 12 months if you do not co-operate with your trustee. Check your discharge date using the Individual Insolvency Register. If your discharge status is “suspended indefinitely” you need to contact the official receiver for an update.

You will not automatically be sent a letter saying you’ve been discharged. To get proof:

  • if the court made you bankrupt, you can ask the court for a Certificate of Discharge (a court fee is payable)
  • if you applied for your own bankruptcy using the online system and your case was handled by the Adjudicator (after 6 April 2016), you can use our online contact form for a Certificate of Discharge (no fee)

Do not ask for proof before the discharge date.

You’ll be freed from your debts once your bankruptcy has ended, except for:

  • debts gained by fraud
  • money owed under family proceedings (maintenance and lump sum settlements)
  • damages payable to anyone for personal injuries
  • student loans
  • court fines
  • debts created after the bankruptcy order

 

What Happens To My Credit Rating After Bankruptcy Discharge

The official receiver will not tell the credit agencies when your bankruptcy ends. You might need to ask the credit agencies to update their records to include details of your discharge.

The bankruptcy can stay on your record for 6 years after the date of the bankruptcy order.

Your bankruptcy will stay on your credit file for 6 years after the bankruptcy order is made. You should check if the entry has been removed after 6 years.

The 3 main UK credit agencies are TransUnion, Equifax and Experian.

 

Leasing a Car When Bankrupt

At CVS Ltd we specialise in working with customers who have been bankrupt, offering fantastic deals on personal car leasing and business car leasing.  We can personalise bad credit car finance agreements to suit you: adjust your contract terms to have high mileage, low initial payments, no deposit, and adjust the length of the lease

Get in touch with us today to discuss your bankruptcy car leasing options or apply.

 


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