Bankruptcy
- See also:
- Bankruptcy FAQs
- Disadvantages of Bankruptcy
- How to File for Bankruptcy
- How to Avoid Bankruptcy
- The Effects of Bankruptcy
- UK Bankruptcy Law
- authorised debt settlement
- alternatives to bankruptcy
- comparison matrix
- remortgage
- debt management
- IVA
- apply online
- debt counselling
While there are a number of increasing number of people in the UK who are filing for bankruptcy or being made bankrupt by their creditors, there is an even greater number of people who are looking for alternatives. Learn more about alternatives to bankruptcy.
Filing for bankruptcy is an option that UK individuals and households have when they find themselves insolvent, that is to say when they are not able to pay off the debts that they have run up. This can be seen as an extreme option as it has a number of implications that many wish to avoid, for example homes and cars can be taken away, and it can be extremely difficult to get credit or a mortgage after bankruptcy.
For some who do select bankruptcy it is because it can be a short term final settlement to a serious debt situation. For others it is the only option.
How it Works
Once an individual files for bankruptcy at their local county court an Insolvency Practitioner is appointed as Official Receiver. Often this Insolvency Practitioner is put forward by the creditors, especially if the majority of the debts are consumer credit debts such as credit cards and loans. On other occasions the Official Receiver is appointed from a list of local Insolvency Practitioners.
Just as in an IVA, the Insolvency Practitioner then goes through a fact finding and due diligence process with the individual in question. During this time information and evidence is compiled that gives an accurate representation of the debtor's financial position. This is a rigorous process that requires the debtor to attend meetings with the Insolvency Practitioner and to provide information and evidence about the following:
- Creditors (e.g. lender, type of credit, account number, balance, etc.)
- Assets (e.g. home, cars, expensive jewellery, etc.)
- Monthly income (e.g. salary, benefits, etc.)
- Monthly expenditure (e.g. rent, bills, car/transport, household, etc.)
- Background and household information
A date for the Bankruptcy Hearing is set and the creditors are contacted to be informed of the bankruptcy hearing and to provide proof of the debts and final balances.
The debtor and the Official Receiver attend the Bankruptcy Hearing which is presided over by a magistrate from the county court. Creditors or appointed representatives can also attend should they wish.
The magistrate reviews the information provided by the Official Receiver and makes a judgement on the content of the Bankruptcy Order. The outcome is normally a combination of three elements:
- A bankruptcy period varying from 12 to 36 months
- Lump sums to be realised by the sale of assets (e.g. home, car)
- Contributions from income each month
The standard period of a bankruptcy is 36 months but can be reduced to as little as 12 months in mitigating circumstances. During this period certain restrictions apply, for example the bankrupt person is prevented from having any form of credit such as a cheque book.
The lump sums depend on what assets the debtor possesses at the time of the bankruptcy hearing. There will normally be a short period of time after the hearing during which these assets are forced to be sold.
The monthly contributions are worked out by calculating how much is left over after essential expenditure has been subtracted from monthly income. The magistrates can be relatively severe when deciding what counts as essential expenditure, however they tend to require that only 50-75% of the remaining income is paid towards the bankruptcy.
A bankruptcy notice naming the insolvent person is published in the national newspapers and the bankruptcy is recorded on the Insolvency Register and with the Credit Reference Agencies. If the debtor is a tenant then the landlord is also informed.
The Official Receiver continues to govern the bankruptcy after the hearing. He will make sure that the assets are liquidated and that the monthly payments are contributed. These payments tend to be deducted at source, that is to say that the debtor's employer pays money to the Official Receiver directly. The funds accumulated are distributed amongst the creditors based on how much each of them were owed originally.
When it is Suitable
Many see bankruptcy as an extreme option to be selected only after other alternatives have been exhausted. However there are some circumstances where there is an argument that bankruptcy is a plausible option, for example:
- When there is no chance of ever being able to set up an alternative such as an IVA.
- When there are no assets, and no available income.
- When the debtor has retired, or has no future need for credit.
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What to Look Out for
- Student loans are not includable in a bankruptcy.
- Whereas in the short term it can appear to be a cheaper option than for example an IVA, in the longer term it may prevent an individual from owning a property as they will not be able to apply for or afford a mortgage.
- Certain careers such as those in which there is any involvement with money will not allow someone who has previously been bankrupted.
How to Apply, How Do I Declare Myself Bankrupt?
- Find out the nearest county court. There is a court locator available at Her Majesty's Courts Service
- Go to this county court and ask for the forms to complete for bankruptcy. "How do I declare myself bankrupt?"
- Once these forms are completed they can be handed back in at the court along with the application costs of around £400.
- The Insolvency Service now also provides a service to help you complete your application for bankruptcy online.
To talk to an advisor about alternatives to bankruptcy call 0800 138 5445, or complete the enquiry form.
To contact an advisor call 0800 138 5445. Alternatively complete an online enquiry form and an advisor will call you back at the time that you specify.