About Bankruptcy

Bankruptcy is a way of dealing with debts you cannot repay. Anyone can go bankrupt, including individual members of a partnership. An individual can be made bankrupt in one of three ways:

• Voluntarily – by the debtor himself/herself
• Involuntarily – by any creditor who is owed £750 or more
• By an Insolvency Practitioner acting as Supervisor in an IVA

There are two main aims in a Bankruptcy: firstly, to free the individual from the pressures of creditors (people they owe money to) to enable him or her to make a fresh start; and secondly, to ensure that all available assets (such as property and investments) are distributed fairly among your creditors.

The Process

The Courts are officially responsible for making a bankruptcy order against an individual, although this is usually done at the request of either the individual or one of his/her creditors. The assets of the bankrupt individual then fall under the control of a Trustee, this will be either the Official Receiver (a civil servant and officer of the Court), or a licensed Insolvency Practitioner.

Whoever is appointed becomes responsible for finding out as much as possible about the debtor’s assets and liabilities and then maximising returns for the creditors from the assets available, within certain guidelines.

Once a bankruptcy order has been made against you, your creditors can no longer pursue you for payment. Making payment to your creditors then becomes the responsibility of the Trustee, however, if mortgage payments are not made, the lender may enforce proceedings to sell your home.

You will normally be freed from your Bankruptcy Order (known as “Discharged) within 12 months, although it can take longer.

Your Duties

When a Bankruptcy Order is made you must provide the Official Receiver with information relating to your financial affairs (including your debts, assets, income and expenditure).

• Any assets will be handed over to the Official Receiver – these include property, pension policies and insurance policies.
• You must not obtain credit of more than £500 from anyone without first disclosing the fact that you are bankrupt.
• You must no longer use your bank account, credit cards or similar accounts or credit facilities.
• You must not make any direct payments to your creditors.
• You must be available to attend the Court to explain why you are in debt.

The cost of making yourself bankrupt

There are 3 fees that you may have to pay:

• Court Fee of £175 – this can be waived by the court if, for example, you are on income support.
• Deposit of £450 towards costs – this is used to pay any costs in administering your bankruptcy and is payable in all cases.
• Fee to swear the Statement of Affairs – There is no charge in a County Court, but in the High Court there is a £7-10 fee.

If you are a married couple and are both applying for bankruptcy, then you will both be required to pay the fees.

Pros and Cons of Bankruptcy

Bankruptcy Pros

Bankruptcy Cons

The main advantage of bankruptcy is that it is a relatively quick process following which you will be completely discharged of your debts.

Complexity – you will be required to fill in numerous forms and have an extended meeting with the Official Receiver, and, if appointed, a Trustee in Bankruptcy who will thoroughly investigate your affairs. Loss of Assets – you will lose all assets of real value including your home, life insurance and possibly pension. This includes assets you may acquire during the term of your bankruptcy, such as an inheritance. Any business you own is likely to be immediately closed and any employees dismissed. Loss of privacy - your building society, creditors, landlord etc will all be immediately informed. Loss of access to banking and finance – you will have all bank accounts, credit cards etc closed. Anything you might be leasing, or buying on hire purchase, such as your car will be immediately returned to the owner. Loss of Status – you may lose professional and business status and some employment opportunities may be prejudiced

If you think you may need to go bankrupt call us today – we are here to help.