Bankruptcy can take a heavy toll on you. That’s why debt advisers would like to make you think twice before declaring bankruptcy.
You can declare bankruptcy for one of these reasons:
- You’re unable to pay your debts
- A creditor has petitioned to declare you bankrupt because you owe them more than £5000
- You’ve broken your terms of an Individual Voluntary Agreement (IVA)
One of the good parts of declaring bankruptcy is you’ll have a fresh start. The weight of the debts you owe would be taken off since you’d no longer need to manage your lenders.
You’re also allowed to keep your goods that are considered to be “exempt goods”, or goods that are essential to your household or work. You’re allowed to keep a certain amount to live on, and if you’d need to make payments through your income, this would only take about 3 years, and if you’re on welfare, you’re not required to make payments.
The bad part of declaring for bankruptcy is, you’d pay a hefty price for the process. A £680 fee is required to process your bankruptcy.
Impact on your finances. Other than the £680 fee, on the off chance that your pay is sufficiently high, you’ll be asked to pay installments for your debt for 3 years. You’d find it hard also on applying for another credit since declaring for bankruptcy would have an impact on your credit rating for 6 years. You could have a bankruptcy limitation request made against you for as long as 15 years which will confine your monetary issues.
Impact on your properties. If you own a property, this might be sold to compensate for your debt. On the other hand, if you’re currently renting a home, the landlord could end your tenancy. Other possessions could also be sold except for the things that are considered to be exempt goods.
Impact on your employment and business. Employers may consider laying you off from working. If you have businesses, you may be forced to shut it down and sell your assets off. Your immigration status also could be affected if you declare yourself bankrupt.
In addition, declaring bankruptcy has limitations that can be expanded on the off chance that you’re unable to comply with your obligations under the insolvency procedures or in case you’re found to have acted imprudently or dishonestly. Moreover, breaking the restrictions can be considered as a criminal offense and could lead prosecution.
Restrictions. You’d need to comply to the following restrictions:
- borrow more than £500 without telling the creditors that you’re bankrupt
- work as an executive of an organization without the court’s authorization
- make, oversee or advance an organization without the court’s authorization
- deal with a business with an alternate name without telling individuals you work with that you’re bankrupt
- work as an insolvency practitioner (an authorised debt specialist)
Pre-bankruptcy. This service only applies for England and Wales. For Scotland, there’s a different process for declaring bankruptcy (Sequestration), and Northern Ireland.
England and Wales. Application is done online. Someone who works for the Insolvency Service called an adjudicator would look into your application. You’d be providing details about your monthly inflows, outflows, and debts, such as:
- wage slips
- benefits or pension statements
- bills – for example, electricity, credit card and council tax
- letters from a bailiff or enforcement agent
Fee. As mentioned, you’d have to pay a £680 fee for your application to be processed. You can pay the application fee by installments. You can also ask to your debt advisors about charities that can help you out on paying your fee.
Northern Ireland. In Northern Ireland you can only be declared bankrupt by the High Court in Belfast from an application from yourself or from a creditor.
After the application. You’d get an email or letter from the adjudicator on or before 28 days of submitting your application to say if you’ve been made bankrupt.
An adjudicator could need more time if there’s a need to ask more questions about your application. Once confirmed, they’ll then issue a bankruptcy order.
After the bankruptcy order is ordered upon you, you’ll receive a letter from the official receiver within 2 weeks of getting your bankruptcy order. An official receiver will be appointed to process your bankruptcy.
They are civil servants from the Department for the Economy (DfE) and are officers of the Court. The official reviewer looks into your financial status before and during your bankruptcy.
There are requests that you must need to comply that are made by the official reviewer such as:
- going to an interview
- answering of questionnaire
- giving a full rundown of your benefits and subtleties of what you owe and to whom
- giving over your advantages alongside the entirety of your books, records, bank statements and so on
- give details of benefits and additionally any increments in salary
Person at Risk of Violence (PARV Order). Once you’ve declared for bankruptcy, your name and address would be published on the London Gazette and the Individual Insolvency Register.
If you think that posting your address could lead to harm or violence, you can apply for a PARV from the court. Heads up, only people who already have started the bankruptcy application can apply for the PARV. Once approved by the court, your name would still be published, but not your address.
What would happen to my assets? Once you’ve declared for bankruptcy, your assets would be turned over to either your appointed trustee: either an official reviewer or an authorized debt specialist (insolvency practitioner)
Items you could keep. There are certain items that are deemed essential such as assets that are needed for your job: tools or vehicle, or household items such as furniture and bedding, but if they’re worth more than a reasonable replacement, you might have to give these items up.
You’ll be surrendering your bank accounts to your official reviewer, including the account you overdrawn after the date you’ve declared bankruptcy.
Pension. If you’re receiving pensions, it will usually be counted as your income and you’d usually keep them.
Your Home. This will vary from the type of ownership or whether you’re leasing. Your home may be sold relying upon your value – your share after any secured debt (like a home loan) have been paid.
You may need to surrender either your equity or the legal ownership of your property if your value is £1,000 or more.
On the event that your trustee wasn’t able to sold your home within 3 years, it will be moved back to you.
Sole Ownership. Legal ownership and profit from the sale would be transferred to your trustee. This means that you’d not be allowed to sell or earn profit from your home. A notice would be put on your property in HM Land Registry.
Joint Ownership. The equity is transferred to your trustee. A restriction is added to your property’s entry in HM Land Registry. This means your trustee would be notified of any dealings connected with your home, for example if you try to sell it.
You can remove the notice if you’ll prove that you have no share for the property. The homeowner should write a letter to HM Land Registry proving that the person who declared bankruptcy is not an owner of the property.
You could stop the sale of your house by these following reasons:
- the value of your equity is less than £1,000
- the property or equity can be sold to someone else, such as your partner or spouse
- you’d have to arrange for a new home for your partner and children to love, that would delay the sale for a year
Renting. As mentioned above, your landlord may be informed of your bankruptcy and this could affect your rent status.
Income Payments Agreement (IPA). These are monthly payments from your spare income (if you can afford it), and this would be determined by your trustee.
Income Payments Order (IPO). If you weren’t able to reach an agreement with your trustee, the court would determine your monthly payments.
Either income payments charge a fee that would be taken out on your first payment which could cost you up to £150. Also, your monthly payments would be determined on how much you can afford after spending on your essential needs.
Canceling your bankruptcy. There are ways on how you’d cancel or annul your bankruptcy:
- the bankruptcy order should not have been made
- all your debts and bankruptcy fees were paid or secured by a third party
- you‘ve made an Individual Voluntary Arrangement with your creditors to pay all or part of your debts
End of Bankruptcy. Your bankruptcy and restrictions for the most part end when you’re ‘discharged’, which is normally automatic.
This is typically a year after the adjudicator made you bankrupt. It very well may be longer in certain conditions, for instance in the event that you don’t cooperate with your trustee.
On the off chance that you drop your bankruptcy, all restrictions will end promptly and your details will be removed from the Individual Insolvency Register.
You’ll need to apply to both Land Charges and HM Land Registry to have your bankruptcy entry removed from the properties you still own after paying your debts.
Finally, your bankruptcy can stay on your credit reference file for 6 years from the date of your bankruptcy.
As we’ve told you, bankruptcy is very complicated. That’s why you’d need to think not once, not twice, but as many as you need to. It’s also best to seek help from a debt advisor.
With Getting out of Debt UK, we’ll help you determine if Bankruptcy is the best option for you, and would help you to get back on track with a fresh start. Contact us today to arrange a free consultation.