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Bankruptcy Advice

Bankruptcy may be the right solution for you if your debts are so unmanageable you could never realistically pay them off

If you live in England or Wales, bankruptcy is an effective way for you to deal with unmanageable debts. When you are unable to pay what you owe, declaring bankruptcy can give you a way out of debt. You can petition for your own bankruptcy if you feel that there are no alternatives and you cannot realistically afford your debt payments. Your creditors can also petition for your bankruptcy if you have breached the terms of the agreement that you have with them and they feel that bankruptcy is their best chance of recouping some of the money that you owe them.

Bankruptcy is a legal process that may be suitable for you, depending on the nature of your debts, how much you owe, and your current financial situation. The majority of unsecured debts, such as credit cards, rent arrears, and hire purchase agreements, are included in a bankruptcy.

When you declare bankruptcy, some of your assets will be used to pay a portion of the debt and you may have to make monthly payments, depending on your income. After a year, the bankruptcy is finished and any remaining debts are written off.

Important: In many cases, bankruptcy is a favourable debt management solution. However, there are costs involved with declaring bankruptcy and it has serious implications. It will affect your ability to get credit in the future, any businesses that you own, and your assets. So, it is important to carefully consider all of your options before making an application.

How to declare Bankruptcy

If you have explored your other options and you think that bankruptcy is your best option, you can apply to make yourself bankrupt online. You simply need to fill out a form with the Insolvency Service to begin the process. No judges or court hearings will be involved. You can find a link to the application form here.

When you fill out the application form, you will be asked for a range of information about your debts and your financial situation. Information you need includes: 

  • Your outstanding debts
  • Your current income and outgoings
  • Your pension scheme
  • All of your bank accounts
  • Your assets such as car, mortgage, belongings, investments and savings.
  • Any letters you may have received from bailiffs, enforcement agencies or any other types of debt collectors

Once you have filled out the application form and paid the fees to declare bankruptcy, you will usually get a decision within 28 days.

Am I eligible for Bankruptcy?

There is no minimum amount of debt you need to owe in order to be eligible for bankruptcy. Your eligibility is based on your ability to pay and the value of the assets that you own. If you have unsecured debts that you are unable to pay, and your situation does not look likely to change in the near future, you may qualify. As long as you do not own assets that equal more than the debt, and you do not have enough equity in your home to clear your debts, you should be eligible for bankruptcy. You also need to be currently living or running a business in England or Wales, or have done so in the past 3 years.

In order to complete the bankruptcy application, you will need to pay £680 before submitting your forms to the Insolvency Service. This can be payable in instalments.

If you would like to discuss your suitability for bankruptcy and other available options, please select from the dropdowns below and we will contact you.

What happens if I declare Bankruptcy?

As soon as you declare bankruptcy, your creditors can no longer contact you by phone or post asking you about repayments. Any legal action against you to reclaim the debts is also stopped.

Once the bankruptcy order has been granted, all the assets of your estate will vest in the Official Receiver, who can then use them to repay a portion of the money that you owe. However, there are certain assets that qualify as exempt property and can be protected from creditors during the bankruptcy process. These are things that are considered necessary to meet your reasonable domestic needs’ including vehicles, clothing, household furnishings and appliances and tools used for a trade. Any assets that are not considered exempt can be seized and sold for the benefit of your creditors.

Depending on your household budget, you may also have to make an Income Payments Agreement at this stage. If you are able to afford it, you will need to make monthly payments towards your debts for up to 3 years.

How long do Bankruptcies last?

Typically, your bankruptcy will last 12 months, after which you will be automatically discharged. After you have been discharged, you are cleared of all debts that were included in the bankruptcy and you no longer have to pay. You will still be eligible for any other debts that do not fall under the bankruptcy. In some cases, if you do not cooperate with the terms of the bankruptcy it could be extended beyond the typical 12 month period.

A bankruptcy will appear on your credit file for six years from the date you are made bankrupt, even though a bankruptcy typically lasts for only 12 months. Any debts included in the bankruptcy will also remain on your credit file for the six year period.

What are the advantages of Bankruptcy?

Although bankruptcy comes with some challenges and potential risks, there are also many advantages. If you are struggling with debt, here are some of the reasons why bankruptcy may be your best option.

  • A Quick Turnaround – You could be debt free in 12 months as long as you follow the rules of the bankruptcy agreement.

  • A Fresh Start – The debts will be fully written off at the end of the 12 months so you can start again.

  • Based on Affordability – Once the application fees have been paid, you won’t be required to make any monthly payments unless you can afford to.

  • Creditor Protection – Whilst you are in a bankruptcy, your creditors cannot directly contact you for repayment, take legal action against you, or send a bailiff to recover the debt.

  • Pay in Instalments – The £680 charge for making a Bankruptcy application can be paid in manageable instalments (however the order will not be granted until full payment is made).

  • Protect Your Essential Assets – You will be able to retain assets of a reasonable value to meet your domestic needs, and essential work items such as trade tools.

Can I file for Bankruptcy twice?

If you have filed for bankruptcy in the past and you have been discharged, you are able to submit another application if you are in debt again. 

Multiple bankruptcies increase your risk of being subject to a Bankruptcy Restrictions Order. This puts further restrictions on things like your ability to get credit and your work situation. Often, a Bankruptcy Restriction Order is used in situations where the Official Receiver believes you have been dishonest about your finances or you have been irresponsible with money. When you are issued with a Bankruptcy Restrictions Order by the court, you are subject to restrictions for up to 15 years. If this happens the bankruptcy will remain on your credit file for that full duration.

You will be unable to get credit of more than £500 without telling the lender you are bankrupt, you will need permission from the court if you want to start or run a business, and you are unable to act as an Insolvency Practitioner. There are also extra restrictions that stop you from entering certain professions such as becoming a local councillor, school governor, or a Member of Parliament. You should always check your terms of employment to see if bankruptcy could affect your position.

How much does it cost to go Bankrupt?

If you decide to file for bankruptcy yourself, you will be asked to pay a £680 fee. The application will not be processed until this fee has been paid. The money covers: 

  • A £130 adjudicator fee
  • A bankruptcy deposit that accumulates to £550

The fee can be paid in instalments if you are unable to pay it all in one lump sum. Minimum payments start at £5, but the bankruptcy won’t be filed until the fee has been paid in full, so it benefits you to pay larger instalments.

Is an IVA better than Bankruptcy?

An IVA (Individual Voluntary Agreement) is an alternative debt solution that involves creating a repayment agreement with creditors. In most cases at the end of the IVA all outstanding debt will be written off.

When deciding between an IVA or bankruptcy, it is important to consider your own personal circumstances and the nature of your debts. Here are some of the key features of both options to help you make a decision:

  • Typical duration – you will be discharged from a Bankruptcy after 12 months (in most cases) whereas an IVA is a 60 or 72 month agreement. Having said that, a bankruptcy can be extended if you do not meet the requirements of the agreement.
  • Application Costs – there is an upfront cost of £680 before you can apply for bankruptcy, but this can be paid in instalments, if necessary. There is typically no upfront cost when applying for an IVA. The fees are included in the monthly payments that you make to your creditors.
  • Fees – in both solutions fees can vary and are satisfied out of asset realisations made.
  • Debt write-off – In most cases, you will pay less money back through a Bankruptcy than you will through an IVA. The amount that is written off by an IVA is dependent on your personal situation, so you are not guaranteed to have any of the debt written off.
  • Assets – in a Bankruptcy any assets outside of exempt property (i.e. assets of a reasonable value to meet your domestic needs or essential work items such as trade tools) will be included. In an IVA you can propose to exclude assets subject to your creditors’ approval. With an IVA, you are far more likely to be able to protect important assets, including your home.
  • Effect on credit file – Both solutions will be recorded on your credit file. Bankruptcy and an IVA will show up on your credit report for 6 years. Both will impact your credit score, but you can work to rebuild it once your bankruptcy or IVA is finished.

If you are considering either of these options we recommend that you contact us on 0161 843 1516. We will carry out a thorough assessment of your circumstances and provide you with information on these and other financial solutions allowing you to make a decision about the best option for you and your needs. 

Bankruptcy Considerations

While there are benefits to becoming bankrupt, there are also important considerations you must take into account.

Not Private
All bankruptcies are entered in the Individual Insolvency Register and advertised in The Gazette (a government publication for public notices). This is easily accessible online, so anybody can find details of your bankruptcy.
Impact on Business Affairs
You are barred from acting as a company director or being involved with the running of a business during your bankruptcy. Any existing businesses will almost certainly be closed down when you file for bankruptcy.
Impact on Employment

A record of bankruptcy can impact your employment status, depending on your job. Certain employers may dismiss or demote you if you declare bankruptcy and some positions will not consider your application if you have been bankrupt. Many professional membership bodies do not allow people to retain membership after declaring bankruptcy, even if the bankruptcy has been discharged.

Jobs you cannot hold while bankrupt include:

  • Charity trustee
  • Company director
  • Insolvency Practitioner
  • Justice of the Peace

You should check whether your employment is affected in any way before entering bankruptcy, particularly if you work in the following industries:

  • Armed forces
  • Any role involving cash handling (banking, security, HR and payroll)
  • Financial services (accountants, stockbrokers, financial advisors)
  • Legal profession
  • Medicine
  • Property (estate agent, letting agent)
  • Police
  • Pub licensee
Getting Credit
You must disclose that you are bankrupt when getting credit of £500 or more. If you fail to do so, you are breaking the law. If you are subject to a Bankruptcy Restrictions Order, you may not be able to get more than £500 in credit regardless of whether you disclose your bankruptcy or not.
Credit Rating

Declaring bankruptcy will have a negative impact on your credit rating. It will be recorded on your report for 6 years and you will most likely be asked about bankruptcy when applying for a mortgage (even if the 6 years has passed and it is no longer on your credit report).

Possible Extended Restrictions

If you are dishonest about your financial situation or it is decided that reckless behaviour contributed to your bankruptcy, you may have a Bankruptcy Restrictions Order placed on you. This extends the restrictions you must adhere to for up to 15 years and can add further restrictions, in some cases.

Restrictions on Expenditure

While bankrupt, you are expected to live within your means. There are strict guidelines about what you can spend money on and your household budget will be assessed by the Official Receiver.

Loss of Assets

The majority of your assets, including your home, are not protected during bankruptcy. Your assets can be sold to raise money to pay off your debts. Exceptions to this include: 

  • Essential household items (furniture, clothes, appliances)
  • A vehicle (if it is needed for work purposes or to meet basic domestic needs). However, if the vehicle is worth a lot of money, it will be sold and you will be provided with an allowance of £2,000 to buy a replacement
  • Items needed for trade or employment like tools or computing equipment
  • Pension funds (not including payments that your trustee considers ‘excessive contributions’)
  • Student loans (if a balance of the loan remains payable)
Sole Traders & Unincorporated Businesses

When running a business you must disclose the name in which they were adjudged bankrupt to all those they deal with.

Impact on Business Affairs

Declaring bankruptcy affects your ability to run a business and this must be taken into consideration when making your decision. When you file your application, an assessment of your business will be made to determine how it will be handled during the bankruptcy. In some cases, you may be forced to close the business. It may also be sold, with the resultant profits given to your creditors in order to clear a portion of your debts.

While bankrupt, you are not allowed to be, or act as, the director of a limited company. You also cannot be directly or indirectly involved in the formation, running, or management of a limited company unless you have the permission of the court. Typically, you will have to step down from your position if you are currently running a business at the time of bankruptcy.

The business itself can continue to trade, but only subject to the restrictions imposed by the Insolvency Service during the bankruptcy. Per the restrictions, you will not be able to take an active role in operating the business during this time.

Impact on Employment

Bankruptcy can also affect your employment status. In some jobs, a record of bankruptcy may lead to dismissal, demotion or other issues. Some professional membership bodies don’t allow bankrupt persons to gain membership or to remain members, even after the bankruptcy has been discharged. 

Before applying for bankruptcy you should satisfy yourself that this will not have a detrimental impact on your employment. Speak with your employer and read over your employment contract in full to look for any clauses regarding bankruptcy.

Getting Credit

The Insolvency Service set strict regulations about getting credit while bankrupt. If you want to get credit of £500 or more, you must disclose that you are bankrupt to the lender. Failure to do so is a criminal offence. These rules apply whether you are applying for a personal loan or debt for business purposes. 

During the bankruptcy, you may be required to make monthly payments. These are still applicable if you borrow more money, so your finances will be stretched in order to cover both payments. Missing any of the payments during your bankruptcy could lead to an extension beyond the typical 12 month period. As such, getting credit during bankruptcy is always a risk.

Credit Rating

Credit reference agencies retain information about your financial history for 6 years, and this includes a record of your bankruptcy. Declaring bankruptcy will have an impact on your credit rating, but once the 6 years has passed and it is removed, you can begin rebuilding your credit. However, in the meantime, your bankruptcy will make it more difficult to borrow.

Restrictions on Expenditure

While bankrupt, you are expected to live within reasonable means and any disposable income should be used to pay towards your debts. The Official Receiver will review your spending, using commonly accepted budgetary guidelines, to determine whether you are spending excessively or not. Unreasonable expenditure in any area could lead to the extension of the bankruptcy and you may be issued with a Bankruptcy Restrictions Order too.

Frequently Asked Questions

  • Can I Apply For Joint Bankruptcy?

    Couples must file for bankruptcy individually. If you have joint debts and you are both named on the credit agreement, these must be handled carefully. When only one person files for bankruptcy, the other is liable to pay the entire debt on their own. By both filing for bankruptcy, you can avoid this. You will file separately and both pay separate bankruptcy fees. The monthly payments will also be separate. 

  • Can I Get A Mortgage After Bankruptcy?

    You will not be able to get a mortgage during your bankruptcy but once you have been discharged, you are able to apply. However, being bankrupt does make it more difficult as lenders see you as an increased risk.

    Applying immediately after being discharged is difficult and you are unlikely to be approved. But as time passes, your bankruptcy generally becomes less relevant. 

    Finding a mortgage advisor that specialises in poor credit can help you bolster your application and improve your chances of getting a mortgage.

  • Are Student Loans Included In Bankruptcy?

    Bankruptcy covers the majority of loans but there are some that it doesn’t. Student loans from the Student Loans Company cannot be written off during bankruptcy. Your repayments are based on your income, so if you are not earning above the threshold, you will not have to make repayments.

  • Can I Stop Them Entering Indefinitely?

    If you refuse the bailiff entry indefinitely, the Warrant will be returned to the Court. This means the bailiffs are saying they have not been able to get payment. The creditor may then take other action to enforce the Judgment, such as an Attachment of Earnings Order or in some cases seek a Bankruptcy Petition.
  • How Can Bankruptcy Affect My Spouse?

    There are some ways that your spouse can be affected when you declare bankruptcy, even if they do not file for bankruptcy themselves. If you have joint debts and you file bankruptcy, your spouse will still be liable to pay the full amount, which can leave them in a difficult position. 

    Any personal assets that your spouse has are usually safe during bankruptcy. Things like wages, savings, property that is personally owned, and goods that are personally owned will not be taken. However, there are some exceptions.

    Even if your home is in your spouse’s name and you are not listed on the mortgage, the property could be affected if you are considered to have a ‘beneficial interest.’ If you regularly pay towards the mortgage or pay towards renovations, you have a beneficial interest in the property.

    Your spouse may also be asked to buy out your share of any jointly owned goods. The money they pay must be equal to their true value. If they do not buy your share, those goods may be sold to pay towards your debts.

    You are not allowed to give your partner gifts or sell items at below market value in order to protect them during your bankruptcy. All gifts or items sold in the last 5 years will be checked for this reason.

  • Does Bankruptcy Affect My Employment?

    Bankruptcy can affect your employment, depending on your job and your employer. Certain employers will dismiss or demote you if you declare bankruptcy. There are also certain jobs that you cannot hold if you are bankrupt, including: 

    • Charity trustee 
    • Company director
    • Insolvency Practitioner
    • Justice of the Peace.

    Other professions, usually those involving money handling or positions of responsibility may also be affected. It is best to check how your work will be affected before filing for bankruptcy.

  • Can I Get Car Finance After Bankruptcy?

    Getting credit of any kind after bankruptcy is difficult as it impacts your credit. However, it is still possible to get car finance and there are specialist lenders that cater to people with poor credit. 

  • Does Bankruptcy Cover Tax Debt?

    Yes, tax debts are treated in the same way as other debts during bankruptcy. Your income tax debts for previous years will be included and HMRC will be notified so they do not deduct money for the current tax year. This extra money in your pay packet will then be given to your creditors instead of being paid to HMRC. Any council tax debts will also be written off when you file for bankruptcy.

    If you are owed any tax refunds, these will go straight to the Official Receiver and be paid to your creditors.