Bankruptcy

Bankruptcy is a formal debt solution if you are unable to pay all your debts. You are able to apply yourself, or a creditor may apply to make you bankrupt providing you owe them at least £5,000.

Making yourself bankrupt is now an online application procedure so there is no requirement to attend court when you apply.

Once you are made bankrupt the Official Receiver will become trustee unless creditors vote for an alternative. It is a trustee’s role to realise the assets that form the bankruptcy estate and to pay creditors a dividend if there are sufficient funds.

Most bankruptcies come to an end after one year and you will be discharged. Debts that have not been paid will be written off although some, like court debts, maintenance, and student loans remain.

If the Official Receiver thinks you have been guilty of an offence or you fail to cooperate with them then you may have a Bankruptcy Restriction Order made against you for up to fifteen years which will have a consequent effect on your discharge.

  • You can make a fresh start, in most cases after twelve months.
  • You do not have to deal with your unsecured creditors.
  • Court action from your unsecured creditors stops.
  • Most of your unsecured debts will be written off.
  • There is a fee of £680 to be paid to the Insolvency Service.
  • Your income and expenditure will be assessed and you may be required to make payments towards your debts for up to three years. This is known as an Income Payments Order (“IPO”).
  • Should you own a house it may be sold if there is sufficient equity.
  • If you own luxury items then these may be sold. This may include any motor vehicle you own.
  • Your business assets may be sold.
  • Bankruptcy may affect your ability to work. You will be unable to be a director of, or manage, a limited company whilst you are bankrupt unless you have permission of the court.
  • You will have difficulty obtaining credit and the bankruptcy will be listed at credit reference agencies for six years.

In some circumstances, depending upon your financial situation, bankruptcy may well be the best solution to debt problems and should not simply be seen as the “option of last resort” without first having sought advice from a recognised debt advisor or insolvency practitioner.