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Bankruptcy

What is Bankruptcy?

Bankruptcy is a scary word for most people and simply put, means that you are unable to repay your debts. Going bankrupt is the realisation that you have run out of options financially. If you cannot afford to repay any of your debt then Bankruptcy may be a solution for you. Bankruptcy is a formal debt solution and is generally considered as a last resort after investigating all other avenues of dealing with your debts. In Bankruptcy, your assets, financial affairs and many other areas of your life will be under scrutiny.

Bankruptcy is not necessarily a bad thing and often it can help people on the way to rebuilding their financial situation. It is important to remember that bankruptcy is not forever.

In order to satisfy debts, usually only your basic living expenses will be taken into account and the rest will be liquidated. A court will take the place of creditors and will assess the situation, reach a satisfactory solution, and impose the conditions upon you, the debtor.

Theoretically, the debt is taken away from the debtor and creditors are satisfied by the order of the court. After this, the creditors will have no further rights to request any more money.

The court appoints a receiver who will investigate every asset and formal relationship the debtor had, to accurately work out all available assets. The receiver may also contact other financial institutions, government departments, landlords, and anyone else they believe may harbour information regarding any assets. The receiver will report to the court and recommend an Income Payments order if they believe the debtor may have a certain amount of disposable income that would allow them to make repayments towards the debts.

The debtor will have all their assets liquidated and the proceeds will be paid to the creditors.

In a bankruptcy you may be able to keep certain assets - these include:

  • Ordinary household contents
  • A modest motor vehicle
  • Benefit of a residential tenancy
  • Any items you will need to continue your vocation or trade
  • Any money you may have in a pension fund, however, there may be different rules if your fund is very large.

A debtor is branded bankrupt for a period of 12 months and then discharged. After discharge, no further debts are owed but often institutions and individuals will ask if a person is a discharged bankrupt. If you have surplus income after meeting your essential household and personal expenses, you will have to make payments out of your income for up to 3 years in an Income Payments Order.

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Debt Management

Debt Management is an informal debt solution that allows you to repay your debts by means of affordable monthly repayments.

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Debt Consolidation

Debt Consolidation is when you reorganise your debts by obtaining a loan to pay off some or all of your other debts.

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Bankruptcy

Bankruptcy is a formal process where you declare your inability to pay your debts. It is usually seen as a last resort solution.

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Debt Relief Order

A Debt Relief Order is like a form of mini-bankruptcy, for people with low income and little or no assets.

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Bankruptcy Frequently asked questions

Find out everything you need to know about going Bankrupt by reading our Bankruptcy questions and answers below. If you have a question that isn't covered here, be sure to get in touch with us and we'll be happy to answer any queries you may have.

A court can declare you bankrupt after it has been presented with a bankruptcy petition either by yourself or a creditor.

You can file your own bankruptcy petition by filling out the online form at the government insolvency website or alternatively you can obtain one by visiting your local county court. Contact your county court first to make sure they have bankruptcy jurisdiction.

When the form has been filled out, you submit it and pay your Bankruptcy fee. The total fee is £680 which you can also pay online. If you pay online, it can be paid in instalments. You can also make your fee payment at a designated bank in cash, but full fee must be paid if you do this.

After the form and payment is submitted, you must wait for the Bankruptcy Order to be accepted or rejected. This can take up to 28 days. If the adjudicator needs to contact you for more information, they will be allowed an additional 14 days before making their decision.

You can ask for a review if your application is rejected. If it is still rejected after this, you can appeal to the court.

If the application is accepted, your Bankruptcy Order is made and your finances and assets will fall under control of the Official Receiver, who will oversee the administration of your Bankruptcy. You must co-operate fully with your Official Receiver.

Provided there are no issues, you will be discharged from your bankruptcy after 1 year.

The two solutions are both forms of Insolvency but they are also quite different. Below are their similarities and differences.

Similarities of Bankruptcy and IVAs

  • You are protected from your creditors involved in the solution. They aren't allowed to contact you.
  • Your credit file is affected for 6 years.
  • Your name is entered on the Insolvency Register.
  • Remaining balance of debt is written off on completion.

Differences between Bankruptcy and IVAs

  • You aren't forced to sell your home in an IVA, but if you have equity you may be asked to remortgage (if possible). If you can't remortgage, your IVA could be extended for up to a year.
  • In Bankruptcy, if you own a property with equity, it is very likely that you will have to sell your home. You may be able to keep your property if there is no equity in it.
  • You are able to keep your car in an IVA, providing it is a moderatrely priced make and model.
  • You will have to sell your vehicle in Bankruptcy, unless it is necessary for work and it is of low value.

Bankruptcy usually lasts for a year. If you are subject to an income payments order, you could be making payments for up to 3 years. The length of time your bankruptcy lasts largely depends on you. If you co-operate with your IP or Official Receiver you will most likely be discharged from your bankruptcy in a year, regardless of how much you owe.

Should you fail to co-operate, your bankruptcy may well last a lot longer than a year. In some cases the term can be shorter than a year, but this is rare.

Bankruptcy does have a major effect on you and your situation. When bankrupt, the official receiver or appointed trustee can decide to sell your assets to pay your creditors. There are however exceptions to what they are allowed to sell such as work equipment (tools, vehicles or anything required to work) and essential household items needed by either you or your family such as clothes, bedding, furniture and more.

An Official Receiver will look at your earnings and take into account your personal expenses and decide if it is prudent for you to pay money to your creditors. This payment can be in the form of fixed monthly payments and can last for three years.

If you object to this agreement, the official receiver has the right to get a court order to force you to make these payments for a minimum of three years. These payments can be reviewed by your request should your situation change in any way.

You will still be liable to pay any new debts you may generate after going bankrupt and any ongoing commitments and payments such as rental or other household bills.

There are two types of bankruptcy:

  • Voluntary Bankruptcy - Where you declare yourself bankrupt
  • Involuntary Bankruptcy - Where a creditor tries to make you bankrupt

Before declaring yourself bankrupt, it is important make sure that you have looked into other options that may be available to you such as debt consolidation loans, IVAs, informal agreements, administration orders and other debt management plans. Often one of these solutions can prevent bankruptcy and provide the same level of financial help you require.

It is a common misconception that the bailiffs will turn up the day after declaring yourself bankrupt and seize your TV and other possessions. This is not true and bankruptcy is designed to prevent exactly that. Your non-essential assets and excess income would be used to pay your creditors. Your house is considered a non-essential asset so that would be used.

When you have been declared bankrupt the Trustee in charge of the process should be informed of all the assets that you possess, and it will then be up to them to decide what you may keep.

The Trustee will then have control over any assets that are not exempt from the bankruptcy and will arrange for them to be sold. Any proceeds made from these sales will be put towards the bankruptcy. You will also find that once the bankruptcy order has been made, your bank and savings accounts will also be seized by the Trustee and any credit also used for the bankruptcy.

Signing over your Assets

Once declared bankrupt, the Court can check to see if you have given away or sold any assets for less than their worth over the last five years. If they find that you have done this then the assets will be seized.

Dealing with your Assets prior to Bankruptcy

If you know you will be declared bankrupt, then you should sell any assets yourself. Should you be able to make enough from this then you may in some cases be able to prevent the bankruptcy. It is important to remember that you should not give away or sell these at less than their true value.

Only your own goods can be sold and if you can prove another person owns items then these cannot be sold. Should you own any expensive items jointly then it is still possible that you could be made to sell these, with the Court only retaining the amount that is yours.

Household Items

In most case you will be able to keep personal and household items such as furniture, electrical goods, and kitchen appliances. However, should your items be overly expensive then you may be asked to sell them and replace them with a cheaper model. Items like this are known as unreasonable.

Houses

If you own a property, then any equity in this can be taken and used by the Court. Should the property be a family home then it may be possible to wait until accommodation has been found. Should the mortgage be in joint names then this asset can still be seized but only the amount that would be yours will be kept by the Court. If there is no equity, then the Official Receiver can still take possession of the house for up to 3 years.

Vehicles

Should you have a vehicle that you need for your job then you will often be able to keep this providing it is not classed as unreasonable. However, if you have any other vehicles that you do not require for working then you will normally be told to sell these.

Windfalls

Should you come into a windfall payment during your Bankruptcy then this money will be taken by the Court. However, once you have been discharged you will be allowed to keep any windfalls.

Pension

You will normally find that this would not be classed as an asset and would not be used by the Court.

If you are declared bankrupt, then the Official Receiver or the Trustee may need to sell your home to repay your creditors. They can do so even if your property is freehold or leasehold, solely or jointly owned.

In cases where your debt has affected your ability to repay your mortgage then your lender may wish to sell your home.

Should your family be living with you then your house may not be sold immediately. In these cases, you may find that nothing happens until the end of your first year of bankruptcy. It is important to remember though that all situations differ and therefore your home may still be sold earlier. If you have a friend or family member that can buy the beneficial interest in your home, then this can stop the property from being sold. The person in question would need to contact the Official Receiver or trustee for further instructions regarding this.

The beneficial interest is the interest from the proceeds when the property is sold. This will transfer to the Official Receiver or Trustee once you have been declared bankrupt. Should your property be solely owned then the legal title will also transfer to them. However, if your property is jointly owned then the legal title will still be with yourself and the joint owner.

In some cases, it may be that nobody can afford to or will buy this beneficial interest and if this happens then it will stay with the Official Receiver or the Trustee in charge. It is worth noting that the beneficial interest will not return to you upon discharge so please be aware of this.

The Official Receiver or Trustee in charge of your bankruptcy will most likely have to inform your landlord that you are involved in bankruptcy proceedings. Your landlord will then decide what action they wish to take. If you are unable to pay your rent, then your landlord is perfectly within their rights to take legal action against you.

  • Your unaffordable debts are dealt and written off where applicable.
  • The stress of having to deal with your unaffordable debts is lifted.
  • It allows for a fresh start after as little as one year.
  • Everything is dealt with by your administrator / official receiver.
  • It is legally binding for both you and your creditors. Creditors will no longer be able to pursue you for the debt.
  • You may be able to keep your home, provided if your spouse, partner or a relative can buy your share of it’s value after any debts secured on the property have been paid.
  • Your Bankruptcy is placed on a public register and advertised.
  • There are large fees associated with Bankruptcy which you will have to pay if you apply for your own Bankruptcy.
  • You will still remain liable for certain debts – student loans and fines for example.
  • You will lose certain assets of value.
  • Your home could be sold if there is equity in it.
  • Your employment could be affected.
  • If you are a business owner, your business could be affected.
  • Certain professionals could be barred from practising if made bankrupt.

The following list outlines the main bankruptcy obligations:

  • You must divulge to the official receiver, all records of assets, income, expenditure and a list of the people or companies you owe money to.
  • Take proper care of all your assets and hand them over to the Official Receiver with the relevant documentation for them such as insurance certificates, receipts and proof of purchase paperwork.
  • You must also work closely with your Insolvency Practitioner or Receiver, informing them of any changes in your financial situation. Pay raises, pay cuts, inheritance, new assets or anything that affects your financial situation must be immediately declared.
  • You must cease using credit cards and bank or building society accounts with immediate effect. Failure to do so will put you in breach of your bankruptcy agreement. You are also not allowed to borrow over £500 without telling the creditor that you are officially bankrupt.
  • You must not make payments directly to your creditors now that you are bankrupt. All your payments must go through your trustee or Insolvency Practitioner. There are a couple of exceptions to this such as child maintenance payments and any mortgage arrears you may have accrued. This is for your own protection as much as for the protection of your creditors.
  • In some cases, you may have to attend county court and give a formal explanation of the circumstances surrounding your debt, and your failure to pay back your creditors.

Making yourself bankrupt in England if you live abroad

If you live in an EU member state, except Denmark, then you will able to declare yourself bankrupt in the country where your main interests are based. If this is the UK then you can apply for bankruptcy there in person at an English or Welsh Court. However, you can only do this within the first three years’ after you have moved abroad. When declaring yourself bankrupt you must present your petition in person or via a solicitor. Should you ask someone to act on your behalf then you will most likely need to grant them power of attorney.

It is possible that your bankruptcy may not be fully recognised in the country that you are now living in and your creditors may still be able to take action against.

Will bankruptcy affect my assets abroad?

A bankruptcy order will affect your assets abroad, but this will all depend upon where they are and if you have at some point had a business in another EU state. If you have any assets in Denmark or non EU countries then these will be part of your bankruptcy estate in the UK.

Do debts owed to foreign creditors fall into my bankruptcy?

Any creditors that you have, no matter where they are, will be able to claim in your UK bankruptcy. A foreign creditor will not be prevented from recovering debts against you in their own country.

Does a foreign bankruptcy order have any effect in England and Wales?

The effect of a foreign bankruptcy order will depend upon the country in which you are experiencing bankruptcy proceedings. If your centre of main interests is in another member of the EU, but not Denmark, then the trustee will have authority to deal with all assets within the EU. With regards to any bankruptcy restrictions, these are dependent upon foreign legislation that governs the bankruptcy.

It is worth noting that any debts that you have in the UK will remain on your credit reference file for six years after the last activity on the account. Any bankruptcy orders will also be on your file for six years or sometimes longer.

Do I Have to Let the Bailiffs into My Home?

If you find yourself in debt and have been told that bailiffs will be sent around then it is important that you know your rights.

Letting the Bailiffs in

Should you be in a situation where you have not yet let the bailiffs into your home then they are not allowed to enter your property to collect the debt that you owe. It is worth remembering that they are not allowed to break into your home, and you are well within your rights to refuse them entry. You will also not have to sign any documents that they ask you to even though they may say differently.

As soon as they have been inside your property, they will have the right to do so again, so it is important that you do not give them the room to do so when you open your front door. Similarly, make sure that there are no other doors or windows left open for them to gain access as they may choose to do so. The best thing you can do is to offer the amount that you are able to pay, if any, and then ask them to leave. If they accept your offer of some form of payment, then make sure that you pay them outside of the house so they cannot gain entry and obtain a receipt as proof of payment.

It is important to remember that the bailiffs are there to collect the debt and may do this anyway that they legally can. Therefore, be aware of them asking to have a talk with you indoors or even asking to come in for just a minute to give you more details. As soon as they have entered the property they can do so again. Keep any valuables you have inside the house and away from view but be aware that if you have a car parked outside then they may be able to take this.

What to do if the Bailiffs have been let in

Unfortunately, if you have let the bailiffs into your home and they carried out a valid levy, then they can re-enter the property and if you do not let them then they can break-in instead. If you have let them in, then it is important that you contact the bailiffs and offer to pay the debt in instalments that you can manage to pay. It may be worthwhile showing them the budget that you are working to so that they are aware that this is all you can afford. It is important to understand that this debt is now a priority since failing to keep up the repayments could mean they remove goods from your home. Always make sure that you obtain a receipt for any payment you make, no matter how small.

If you have found yourself in debt problems, then it is possible that your creditors may threaten you with debt collectors and bailiffs. It is therefore important for you to know exactly what your rights are and how to manage the situation.

What is the difference between a Debt Collector and a Bailiff?

A debt collector is sent by a debt collection agency at the request of one of your creditors. However, it is worth remembering that they are not bailiffs and as such will have no legal power against you. Should they threaten or harass you in anyway then you are within your rights to contact the police.

A bailiff is a person appointed and sent by the courts to help collect the debts that you owe. If the debt collection agency wishes to apply for a warrant to be able to legally collect the debt and seize property, then they must apply to the County Court. If they do not, then they will have no authority to do so. Bailiffs should always be able to provide you with identification or authorisation when requested.

Do I have to let them in?

It is important to remember that you do not have to let a bailiff into your home, and they are not allowed to break in. However, you should be aware that once a bailiff has entered your property then they can revisit and can do so forcibly. You should therefore make sure that windows and doors are not left open as initially they can enter your property this way and will then be allowed to return. It is also worth noting that they cannot visit if someone under 18 is alone or even if a person under 12 is present.

Can they take items?

Yes, they can, but not items that you need for work or items such as the cooker, washing machine, fridge and freezer and some items of furniture. They will be able to take items such as TV’s, stereos, games consoles, DVD players etc. If these items are owned or jointly owned by the person in debt, then the bailiffs can take them. Please note that they can also take vehicles such as cars and motorbikes.

If you feel at any point that the collector has harassed or acted in a threatening manner, then you should complain to the company themselves.

If you have had a County Court Judgment (CCJ) made against you then you may wonder if there is a way you can remove this. A quick search will show you that there are many companies out there making claims they can remove a CCJ. However, the truth is that nearly all of these will not be able to do this and will often ask for money to be paid in advance. The best way to really limit the impact is to just settle your CCJ.

The only real way that you can remove a CCJ from your credit file is if it was registered in error. If you believe that a real error has been made then you can send the N244 form to the County Court and give them the reasons for this. If your claim is valid then they can agree to remove your CCJ from the Register of County Court Judgements. It would also be wise to write to the main credit agencies such and Experian and Equifax to let them know of the error and ask for them to update your credit file accordingly.

If however you do not have a valid reason for requesting your CCJ to be removed then it is important that you do not attempt to do so. If you do this then the court will view you as time wasting and you could face penalties.

Occasions when a CCJ will be set aside

There are a few reasons why a Court would allow a CCJ to be set aside and these include, if you were to settle it within 28 days as in these cases the Court will often remove it, or if you have been the victim of identity fraud.

You could also have a CCJ removed if you had not been informed or given an adequate length of time to reply, or if you were unable to attend the hearing for a valid reason. In cases where you did not receive a notice of missed payments from the creditor prior to notice from the court then it could be set aside.

If you have been declared bankrupt, then you may be discharged from your bankruptcy order after one year. However, it is important to remember that being discharged within this time is not a guarantee and can in fact be postponed by the Court if they feel this is necessary. This is often the case should you have been declared bankrupt in the past. In such circumstances you can only apply to the Court for a discharge 5 years after the date of your bankruptcy order. Again though, the Court may not agree and can withhold discharging you.

When you are discharged from your bankruptcy you should be aware of what this means. It will release you from the debts that you had up until the time of the bankruptcy order but remember that this does not include those debts that you have been given due to fraud or fines. Some other forms of debt such as any maintenance payments that you are required to make are released only at the Courts’ discretion.

What will happen to my Assets?

You may find that some of the assets that were taken control of by the Official Receiver or Trustee will not have been dealt with when you are discharged. This could include assets such as your home, a policy, or a will. In such cases you should be aware that these assets will remain in the control of the Trustee until they have been fully dealt with.

Can I be made Bankrupt again?

If you do not begin to look after your finances and stay out of debt, then you could be made bankrupt again later. For this reason, it is important that you learn from your mistakes and obtain help and advice to prevent the situation reoccurring. In such cases you may find that more serious action is taken against you and you could end up being prosecuted for your actions. This is especially the case if you obtained credit whilst in your bankruptcy but did not inform the lender of your status.

An annulment is a procedure made by the Court to cancel your bankruptcy order. If you wish to apply for an annulment, then you can do so at any time if the bankruptcy order has not been made. This could be because the correct protocol was not followed, or if the bankruptcy debts and related fees are completed to the Courts satisfaction. It may also be because you have entered an Individual Voluntary Arrangement (IVA).

Applying for an annulment

Should you feel that the bankruptcy order was made wrongfully then you are within your rights to apply for an annulment by obtaining an application form from the Court. You will then need to produce an affidavit, or a witness statement confirmed by a statement of truth declaring that the bankruptcy order should not have been made. The court will then set a date to hear your application and you should make sure that you attend this. It will be your responsibility to make sure that you let the Official Receiver know along with whoever requested for your bankruptcy and provide them with copies of the documents above.

If the bankruptcy debts and expenses are paid then you should get an application form from the court dealing with this and attach the same documents as above. The Official Receiver or the trustee will then have to send a report confirming that your debts have in fact been paid.

Should you wish to enter an IVA and your creditors agree, then either you or the IVA supervisor will be able to apply for an annulment of your bankruptcy. When you are declared bankrupt is it usual for a notice to be placed in the local paper to announce this. If you have applied for an annulment, then it is possible for you to also apply to the court to prevent the bankruptcy being advertised in this way.

What happens once my annulment is approved?

Once your annulment has been successful you will be back to how you were prior to the bankruptcy order.

If you are currently struggling with your finances, then you may feel you have no choice but to declare yourself bankrupt. However, it is often in both yours and your creditors interests to avoid this and opt for one of the many alternatives.

Debt Relief Orders

A debt relief order is only suitable for those who do not own their own home and have minimal income as well as less than £15,000 of debt. You also be required to have assets of less than £300. A debt relief order will last for 12 months and during this time those creditors involved are forbidden from taking any action against you without consent from the Court. Should your circumstances still be the same when the time frame has been reached then the debts that were part of the debt relief order will be written off.

To qualify you must also be living or have lived within the last 3 years, in England or Wales. You will not be offered a Debt Relief Order if you have had another order or formal debt relief procedure when you apply.

Individual Voluntary Arrangements (IVA)

An IVA is a formal proposal to your creditors in which you offer to repay either all or part of your current debts. For your creditors to accept this they must agree in a vote of over 75% in favour.

You may still propose to enter an IVA after being declared bankrupt. An IVA will normally last for between three and five years and after this your IVA will be declared successful. It is important to remember that if you do not maintain payments then this could lead to the failure of your IVA and often bankruptcy.

Administration orders

Should one or more of your creditors obtain a court judgment against you, then the County Court could make an Administration Order. With this course of action, you will be expected to make regular payments to the court to pay the debt to your creditors providing you have enough income to do so. To qualify for this, you must have debts of no more than £5,000. Failure to maintain regular payments will result in the Administration Order being cancelled.

Sequestration

Sequestration is the Scottish legal equivalent of Bankruptcy and is a way of dealing with debts that you cannot pay. It will take on average around 2-3 months to arrange and set up. The Accountant in Bankruptcy is in charge of handling this kind of bankruptcy in Scotland.

How do sequestrations work?

Initially a petition will be given to the Court and a Trustee appointed. The Trustee may also ask for contributions to be made from your income. The petition can be made by a creditor if they are owed more than £1,500 or by Trustee if the debtor has previously failed on a Trust Deed.

If you wish to apply for Self-Sequestration then you need to owe more than £1,500 and have been served a Charge for Payment or an Earnings Arrestment. If this is not the case then you need to ask for authorization from one or all of your creditors so that you can make an application.

Pros of Sequestration

By taking out a sequestration your creditors cannot take any further action and this will remove any pressure you have been under. You will also only be requested to make one repayment with no further payments needed. It is common for you to finish the Sequestration after 3 years and by this time all your debts will be written-off.

Cons of Sequestration

When you are in a sequestration you will find that your valuable items will likely by sold and if you own your home you will may be forced to sell.

Should you work and receive a regular income then you may have to make contributions into the Sequestration. Similarly any windfalls received before you finish the sequestration will have to be paid in as well.You will also find that certain jobs are no longer available to you such as director of a limited company or an MP. You will also have to face the discomfort of your sequestration being reported in the local press. After you have been discharged from your sequestration you will have a note on your credit file for 6 years.

What other options are available?

Sequestration is often considered to be the last option so you may wish to see about Debt Management, Debt Consolidation loans, or a Protected Trust Deeds as an alternative.

It is very important that any advice you get is fully independent. Especially online, there are many websites that try to steer you in one direction or another according to how much money they make from your circumstances.

We recommend the Citizens Advice Bureau (see a list of CABs local to you). They provide free and unbiased advice on legal, financial and other problems you may have.

We also recommend The National Debt Line (0808 8084 000) between 9:00am and 9:00pm Monday to Friday and 9:30am to 1:30pm on Saturdays.

You can also use our contact form to receive more bankruptcy information. All calls are strictly confidential and you are eligible if you live in England, Scotland, or Wales.

Lastly we recommend Stepchange. You can write to them to receive free impartial advice or phone them (0800 1381 111) between 8:00am and 8:00pm Monday to Friday.

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