Bankruptcy: All You Need To Know
If you are considering going bankrupt, then you probably have a lot of questions you may want to ask including the steps you need to take to apply for bankruptcy. If you are struggling to make payments for your debts such as loans, overdrafts, credit cards etc, applying for bankruptcy could just be the solution for you.
You as the debtor can apply for bankruptcy or your creditors can apply to make you bankrupt. However, for your creditor to make this application, you must owe them at least £5,000 or more.
Bankruptcy: What Is It?
Bankruptcy is a form of insolvency for people with any amount of debt and looking for a quick way to be debt free. When your liabilities exceed your assets or you owe your creditors more than you can afford to repay them, it means you are insolvent. An Official Receiver/Trustee will be appointed to review your financial situation and advise you on the way forward once a bankruptcy order has been made. If you are insolvent or you need to go bankrupt, the first step will involve getting bankruptcy forms in order to begin the process of asking for the court’s protection for your debts.
How To Apply For Bankruptcy
As of 2016, you can apply for bankruptcy online without having to go to a court. You will be required to fill an online form in order to begin the application process for bankruptcy which will cost you £680. This fee is non-refundable. If a bankruptcy order is issued it can be paid in instalments online or by cash at a bank branch. The Insolvency Service or your local Citizens Advice can help you fill in the form.
It is important to ensure that you have enough cash for your daily expenses before applying for bankruptcy as your accounts will be frozen once a bankruptcy order is made.
The Official Receiver will normally arrange an interview with you after which they will inform your creditors about the bankruptcy order and provide them with a summarized report of your current financial situation. Some of your assets may have to be sold in order to settle some or all your debts. Your bankruptcy details will then be published on the Individual Insolvency Register. It is important to note that you cannot declare yourself bankrupt in England or Wales if you live in the EU, Northern Ireland or Scotland but you can do so if you live in Denmark or outside the EU.
When a Bankruptcy Order Is Made
The Official Receiver who is attached to the court and works for the Insolvency Service will normally handle the initial stages of bankruptcy. They will become your trustee if an insolvency practitioner is not appointed to take up that role. The role of the trustee is to sell any assets, with the exception of those that you will need for your job, as well as reasonable domestic items. Once a bankruptcy order has been made, you must provide all your financial information to the Official Receiver including a full list of all your assets. During your bankruptcy, you will also be required to inform your trustee about any rise in income.
An insolvency practitioner who is normally a solicitor or an account may be used if you have significant assets. The law requires you to cooperate with them fully. The trustee or the person who takes care of your assets will sell them and inform your creditors how the money raised will be shared. The trustee may place an advertisement in a newspaper asking your creditors to submit their claims. Money from the sale of your assets will settle the costs of the bankruptcy process before your creditors can be paid. Money left over after everyone has been paid in full including the interest amount on the debts will be returned to you after which you can request to have your bankruptcy annulled or cancelled.
Benefits of Going Bankrupt
Going bankrupt takes off the pressure of having to deal with creditors. A bankruptcy order allows you to keep certain household items as well as a reasonable amount to live on. Your creditors will also be required to stop court cases against you aimed at getting their money back once the bankruptcy order is issued. The money you owe them will be written off.
Disadvantages of Going Bankrupt
In order to apply for bankruptcy, you will be required to pay a £680 fee. While you are bankrupt, you will find it difficult to get credit plus your credit rating will also be significantly affected for a period of 6 years. If you are a homeowner, your house may have to be sold although you can still apply for rehousing at your local authority. Some of your possessions like cars and other luxury items you own may also have to be sold. Pension savings may also be taken away for those who have attained the right age to receive a pension. Your work may also be affected since some professions do not allow people who have been declared bankrupt to continue working.
If you decide to go bankrupt, your personal details will be published publicly. However, you can still petition to have your details removed from the Insolvency Service’s public register. Bankruptcy may also affect your immigration status.
End of Bankruptcy
The Official Receiver will advise you on when your bankruptcy is over but in most cases, it will end after a year. At the end of bankruptcy, some debts will be written off excluding some types of debts such as student loans or court fines. A bankruptcy restriction order may still be issued against you even when you are no longer bankrupt and can last for up to 15 years. This order will affect your financial affairs and is made in cases where you incur debts that you knew you would not be able to pay back or you fail to cooperate with the Official Receiver.
It is important to remember that bankruptcy may not be your only option if you have a debt problem since you can also consider applying for other debt solutions including an IVA, DMP or a DRO if you want to consider other solutions that will protect many of your assets. Before deciding whether going bankrupt is what is right for you, you will need to get some assistance on what options are available and which ones are best for you.