Bankruptcy is a way having all of your debts written off. It is not normally suitable if you have equity in your home or other valuable assets. Assets are items like cars that are worth a lot of money.
You should make sure you are aware how bankruptcy will affect you before you apply. A debt adviser will explain this to you and may be able to help with forms.
You should make sure you are aware how bankruptcy will affect you before you apply.
How to apply
To apply for bankruptcy you have to fill in an online form on the government website.
Since April 2016 people who want to declare bankruptcy don’t need to go to court. Once you complete the online form it goes to someone who makes a decision called an adjudicator. They contact you and tell you what the decision is.
As of the 21st July 2016 the Insolvency Proceedings (Fees) Order 2016 came into effect. This changed the fees you have to pay. You now have to pay a deposit of £550 to apply for bankruptcy, and another £130 for the adjudicator fees. This means it costs £680 to apply for bankruptcy.
If the adjudicator does not make a bankruptcy order then they will return the £550. If you appeal the decision within 14 days they will keep the deposit. You need to pay the fees when you make the application. Speak to your debt adviser about charities that may help with bankruptcy fees if you cannot afford them.
Once a bankruptcy order has been made someone called the Official Receiver will contact you. Their job is to try and get as much money back from you to pay your creditors. They will look at what assets you have and see how much they can get if they sell them. The money they get from selling your things will go towards your bankruptcy debts.
At this point The Insolvency Service will decide on someone to manage your bankruptcy, this person is called a trustee. If you don’t have many assets the Official Receiver will be the trustee. If you need anything for your job you should tell your trustee. For example if you need your car or van, tools or a computer in order to work you should be allowed to keep these.
If you live in rented accommodation you should check your tenancy agreement to make sure that bankruptcy won’t affect your home.
Your trustee will complete a budget sheet with you. If you have more than £20 per month left after your essential expenses, they will ask you to pay all of it towards the bankruptcy debts. This is called an Income Payment Agreement (IPA). The IPA will last three years for most people.
Your trustee should not make an Income Payment Arrangement if your income is only made up of benefits. If you do not agree to the amount of an Income Payment Arrangement, the court will decide what you should pay. This is called an Income Payment Order. If you do not agree with the amount you have been asked to pay you should speak to a debt adviser.
Your bankruptcy order will last for 12 months. At the end of the 12 months your debts are written off.
You can still have a bank account if you have been made bankrupt but it would be a basic account. This means you wouldn’t get a chequebook, debit card or overdraft.
Important points to remember about bankruptcy:
- Speak to a debt adviser before deciding to apply for bankruptcy.
- Going bankrupt writes off your debts giving you a fresh start. Your creditors will not be able to ask you for payment or take further action against you. This can reduce a lot of stress.
- You have to pay a fee before you can go bankrupt.
- You may lose your home and other assets if they are worth a lot of money.
- Bankruptcy will be on your credit reference file for 6 years. This means it will be harder for you to get credit in the future.
- What is breathing space?
- What is a mental health breathing space?
- Priority and non-priority debts
- Bank accounts and debt
- Drawing up a budget sheet
- Negotiating reduced payments
- Free Debt Management Plans
- Administration Order
- Debt Relief Order
- Individual Voluntary Arrangement
- Will I be 'blacklisted'?
- Write Offs
- What can creditors do if I don't pay?
- How to deal with debt collectors in the UK
- Should I tell creditors about my mental health?
- Getting help from a specialist adviser
- What to know about loan sharks