Bankruptcy Advice

Bankruptcy is a form of insolvency that writes off debts you can’t afford to repay. When you’re bankrupt, your non-essential assets (property and possessions) and excess income are used to pay off your creditors.

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What is Bankruptcy?

Bankruptcy is a formal insolvency route for individuals with unsecured debts that they cannot pay. Bankruptcy is often the last resort and can be used when no other alternative is suitable.

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Once you are made bankrupt you have a duty to provide information to the official receiver and the trustee, and attend their office if required.

If you’re unable to repay any outstanding debt in England, Wales or Northern Ireland, Bankruptcy is one of a number of wider financial solutions available to you. Bankruptcy is a form of insolvency. Scottish residents have a similar option available to them, known as Sequestration. While there are similarities between both debt solutions, they are not exactly alike.

Before you apply for any debt solution you should consider the advantages and disadvantages of the solution and how these may impact you. Our experts will be more than happy to walk you through these and explain them in detail.

Who can apply for Bankruptcy?

Bankruptcy may be suitable for someone who has no option available to repay his/her unsecured debts. You can voluntarily declare yourself bankrupt, or by an aggressive creditor involuntarily that you owe more than £5,000 to.

Bankruptcy is a legal agreement. It is designed to help you write off any unsecured debt that you’re unable to pay. After being discharged, normally after 1-year, qualifying debt will be written off. This will help to give you a new start, although the financial ramifications can last up to 6 years.

The promise of writing off your unsecured debts can sound very appealing to many, this may make you want to apply as soon as possible, however, there are a number of factors that you must take into consideration before deciding. If you’re not eligible or your financial circumstances are due to change in the foreseeable future, you will not be able to proceed with Bankruptcy.

If you have decided that Bankruptcy is the right option for you, we will put you in contact with a professional insolvency practitioner, should you need additional help or advice with the process, we’ll be right here to help.

What are the advantages of Bankruptcy?

  • It includes all unsecured debt.
  • Interest is frozen (unless debts are repaid in full, then you may have to pay statutory interest).
  • And at the end of the year, any debts outstanding will be written off and no further action can be taken by creditors to recover it or contact you.
  • For a lot of people, bankruptcy is the quickest and cheapest solution to resolve their debts and it allows you to make a fresh start after only one year.
  • In England and Wales, you can apply online and pay the fee by instalments.
  • (for homeowners only) you may be able to avoid having to sell your home if a third party can buy your share of its value after any debts secured on it have been paid.

It’s important to remember that you are still liable to pay any debts that aren’t eligible for inclusion, as well as any debts that were accrued after submitting your application.

What are the disadvantages of Bankruptcy?

  • If you’re a homeowner, you may have to sell your property as part of the process.
  • Your employment may be affected (people considering bankruptcy should check their contract of employment).
  • Bankruptcy fees are – £680 (£647 in Northern Ireland) – additional fees and costs will be paid out of asset realisation.
  • You will appear on the Insolvency Register while you are registered bankrupt (usually 12 months) – the bankruptcy order will remain on your credit file for 6 years from the date of bankruptcy.
  • Your credit rating will be affected (probably for some time after your bankruptcy ceases) and there may be other restrictions, such as having your bank and credit card accounts closed.
  • Depending on your income level, you may be required to make payments towards any debt for 3 years.
  • Some possessions such as your car or jewellery may also have to be sold.
  • Depending on your age, if you’re receiving a pension or you will be in the near future, this may also be taken

How much will I have to pay for Bankruptcy?

Bankruptcy costs £680. The debt solution provides a number of benefits, you will need the assistance of a professional insolvency advisor. The fee will be paid directly to the Insolvency Service. This fee is non-refundable. You’re only able to apply for Bankruptcy once every six years. It’s important that the information you provide on your application is accurate.

Once your application has been accepted, and the bankruptcy order has been made. Your money will now be in control by the Official Receiver. The Official Receiver will organise your interview, after this, your creditors will be informed and sent a report of your financial circumstances. Any assets you have could be sold to pay off part of your debt.

Most Bankruptcy orders will include a ‘windfall clause’, this means that if you receive any money during the course of your Bankruptcy, you will have to declare it to your insolvency practitioner as a source of income. These windfalls can include things like a pay increase at work. If you’re lucky enough to win the lottery or unfortunate enough to lose a family member, any winnings or inheritance could be passed on to your creditors as part of this windfall clause.

Who is eligible for Bankruptcy?

If you want to apply to become bankrupt, there are certain conditions which must be met in order to be considered eligible. Since Bankruptcy is a legally binding agreement between several parties, the following conditions must be met, or your application will not be accepted:

  • You’re unable to pay back your debts
  • Your total debt must exceed the value of your assets
  • You haven’t been subject to a DRO, bankruptcy, or IVA within the last 6 years
  • You have lived, had a property or owned a business within the last three years in England, Wales or Northern Ireland

The following restrictions also apply:
• Unable to borrow more than £500 without informing the lender about the Bankruptcy
• Ineligible to act as a director of a company without the court’s permission
• Unable to create, manage or promote a company without the court’s permission
• Not allowed to manage a business without informing those you do business with that you’re bankrupt

Most Bankruptcy orders will include a ‘windfall clause’, this means that if you receive any money during the course of your Bankruptcy, you will have to declare it to your insolvency practitioner as a source of income. These windfalls can include things like a pay increase at work. If you’re lucky enough to win the lottery or unfortunate enough to lose a family member, any winnings or inheritance could be passed on to your creditors as part of this windfall clause.

Debts that can be covered by Bankruptcy?

Bankruptcy orders are designed to tackle multiple debts at the same time, there is a list of debts which you can include under the agreement. If you’re struggling with two or more of the following ‘non-priority debts’ listed below, Bankruptcy could help you write off your unsecured debts.

• Personal loans
• Payday loans
• Credit cards
• Store cards
• Catalogues
• Overdraft, including fees and charges

There are also ‘priority debts’ which can be included under a Bankruptcy order, these priority debts include any council tax arrears you owe, benefit overpayments, repossessed asset debts and utility debts such as gas, electricity and water.

There are debts which can’t be included within Bankruptcy, such as court orders permitting to child support, child maintenance, court fines or student loans. If you are having trouble making payments to any of these, they must be dealt with separately.

If any debts have amounted due to fraud, these cannot be included and will still have to be paid once you have been discharged from Bankruptcy.

Is my home at risk if I go Bankrupt?

Your home may be sold, this will depend on the equity (your share after the mortgage or any secured loans have been paid). If you’re a homeowner, we recommend speaking to one of our advisors to see how this may affect the terms and conditions of any Bankruptcy order.

Need Bankruptcy Advice?

If after reading this, you think that declaring yourself Bankrupt may be the right solution for you, contact us to discuss this solution in more detail.

Our advisers will give you the best advice possible and provide all the relevant information needed for you to make a decision that’s best for your situation.

Call now on 0800 121 48 63 or use the “Get debt help button”

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