What is bankruptcy?
Bankruptcy is a legal status that usually lasts for a year (see ‘How long does bankruptcy last’ below) and can be a way of clearing debts you can’t pay. When you’re bankrupt, your non-essential assets (property and possessions) and excess income are used to pay off your creditors (those you owe money to). At the end of the bankruptcy period, most debts are 'discharged' (cancelled).
How do you become bankrupt?
A court can declare you bankrupt by issuing a 'bankruptcy order' after it's been presented with a 'bankruptcy petition'.
Filing your own bankruptcy petition
You can obtain a form (a debtor's petition) from your local county court for £150 plus a £310 deposit.
A creditor making you bankrupt
Your creditors can present a creditor’s petition if you owe them an unsecured debt of over £750.
Once bankruptcy proceedings have started, you must cooperate fully – even if it’s a creditor’s petition and you dispute their claim. If possible you should try to reach a settlement before the petition’s due to be heard - doing it later can be difficult and expensive.
Where is a bankruptcy order made?
Bankruptcy petitions are usually presented in the High Court in London or at a county court near where you live or trade (although not all deal with bankruptcy petitions).
Who deals with your bankruptcy?
Official Receiver
An Official Receiver is appointed to protect your assets. They act as trustee of your bankruptcy affairs if you have no assets.
Insolvency practitioner
If you do have assets, an Insolvency Practitioner will be appointed to act as trustee and sell your assets to pay your creditors.
Once a bankruptcy order has been made against you, your creditors can no longer pursue you for payment. Payment becomes the responsibility of the trustee.
How bankruptcy affects you
Assets
Once you’re bankrupt, the Official Receiver, or appointed trustee, can sell your assets to pay your creditors. However, certain goods aren’t treated as assets for this purpose, for example:
-
equipment you need for your work (eg, tools or vehicles)
-
household items needed by you and your family (eg, clothing, bedding and furniture)
Earnings
The Official Receiver can look at your income (taking into account expenses such as your mortgage, rent and household bills) and decide if payments should be made to your creditors.
You may be asked to sign an ‘income payments agreement’ to pay fixed monthly instalments from your income for three years.
If you don’t pay (or if you don’t sign the agreement voluntarily), the Official Receiver can apply for an ‘income payments order’ from the court to order you to pay - running for at least three years from the date of the order.
If your circumstances change, you’ll need to tell the Official Receiver, so they can review these arrangements.
Ongoing commitments
You’ll still have to meet ongoing commitments such as rent or debts incurred after you become bankrupt.
Your obligations when you’re bankrupt
You must:
-
give the Official Receiver details of your finances, assets and creditors
-
look after your assets and hand them over to the Official Receiver with the relevant paperwork, such as bank statements and insurance policies
-
tell your trustee (either the Official Receiver or insolvency practitioner) about any new assets or income during your bankruptcy
-
stop using credit cards and bank or building society accounts
-
not obtain credit over £500 without telling the creditor that you’re bankrupt
-
not make payments direct to your creditors (there are exceptions to this, such as mortgage arrears and outstanding child support payments)
You may also have to go to court and explain why you’re in debt.
Bankruptcy normally lasts for one year. After this time, you’ll be ‘discharged’ from your bankruptcy regardless of how much you still owe.
Your discharge could happen earlier if you cooperate fully with the Official Receiver. However, in a small number of cases and if you’ve behaved irresponsibly (eg, not cooperating), bankruptcy can last for much more than one year.
Where to get help and advice
If you're thinking about declaring yourself bankrupt or you're being threatened with bankruptcy, it's important to seek independent advice.
Contact Myvesta at http://myvesta.org.uk or by freephone at 0800 1116 885.
