What is bankruptcy?
Bankruptcy is a court-based procedure, with individuals either opting to file for bankruptcy or having it forced upon them if they cannot pay their debts. A trustee in bankruptcy will be appointed, and your assets will be placed in their hands. Their role is then to turn the assets into money to recoup losses for your creditors. In some cases, individual bankruptcy can be a more suitable option as it can be completed in significantly less time than an IVA. The terms of an IVA (a formal agreement with your creditors in which you make affordable payments) may last 5 or 6 years, for example. Through bankruptcy proceedings, however, liabilities are likely to be extinguished within 12 months or sooner. Although the bankruptcy Trustee does have the power to suspend your discharge if you do not cooperate.
Before applying for bankruptcy, a proper and thorough assessment of the situation is required. If any of the below apply to you, we recommend you seek immediate, professional advice:
- Can you only make minimum repayments for your credit cards?
- Are debt collectors contacting you?
- Are you unsure how much you owe?
- Do you need to use credit cards to pay for necessities?
Filing for bankruptcy
You can file for bankruptcy on the government website here. However, the procedure is not without fees. Bankruptcy costs include the filing of the petition, which will cost £680. You will not get this money back once the order is made. It’s also important to note that your bank accounts are, generally, frozen, so you will need to prepare and ensure you have enough to cover day-to-day expenses.
If the application is accepted, your money and bank accounts will, subsequently, come under the control of the Official Receiver. Immediately, they will arrange an interview and tell the creditors about the current situation, with a report on your finances. The Official Receiver (OR) will act as the trustee in bankruptcy unless the OR or your creditors seek the appointment of an insolvency practitioner to act as the Trustee.
Most debts you have at the time of filing for bankruptcy are covered, but there are some that are not written off. Those creditors in the list below can still act to regain their money, so you must always have a plan in place to deal with these creditors and potential cash flow issues. The debts include:
- Magistrates court fines
- Child support and other maintenance payments
- Student loans
- Secured loans
Interview with the Official Receiver
It’s critical that you cooperate with the Official Receiver/Trustee at all times as not doing so can result in severe consequences, possibly even an arrest warrant if you do not attend a public examination. The Official Receiver will:
- Take control of your finances and some of your property
- Assess the situation to ensure you can make the repayments to creditors
- Investigate your conduct and finances
- Advertise the personal bankruptcy in The London Gazette
- Inform your creditors
They may send you a questionnaire for extensive details on your personal situation and finances. Similarly, you will be given an appointment for an interview within 10 days of the application being accepted, and you must attend. Alternatively, these interviews can be held over the phone. They can also request you attend a public examination and a creditors meeting. As a minimum, if you do not cooperate with the official receiver, your discharge from bankruptcy will be suspended indefinitely, meaning there is no end to the consequences of bankruptcy upon you.
If your circumstances have changed and improved since the bankruptcy order has been granted, you must tell the trustee in bankruptcy. For example, if you have received an increase in salary, have received a lump sum or claim payout or have even won the lottery – the details must be recorded. Likewise, you should also tell the IP if your salary has decreased, as you may no longer be able to make the repayments. It’s also important to immediately convey any forgotten debts or assets, which can be later included in the bankruptcy order.
How long does bankruptcy last?
Generally, your bankruptcy order will be complete within 12 months. However, in some cases, it may be discharged later than expected – also known as delayed discharge. This can be due to reasons such as not providing all necessary information. After you have completed the procedure, some public records will be automatically removed – including your details from the Insolvency Register. However, you may have to take action to remove others such as your creditors updating your credit file.
Can I be forced into bankruptcy?
A creditor can attempt to file for bankruptcy on your behalf. Before they do so, they must provide beyond reasonable doubt their attempts to contact you for repayment. For instance, they will usually send a statutory demand or submit a court judgement. If you have received the above two legal methods, your next option is to seek debt advice immediately – these are very real threats. You can oppose the bankruptcy order if you believe you do not owe the money.
Alongside the Official Receiver, the creditors can also appoint a Trustee over your estate. Depending on the type of bankruptcy, the Trustee will review the petition, look for any red flags and attempt to maximise the returns for your unsecured creditors.
Assets to be sold
Your assets may be sold to help pay for your bankruptcy debts. You will have to hand over the assets to the person appointed to oversee your bankruptcy procedure. Either, the official receiver or licensed insolvency practitioner.
Assets you can keep include the likes of tools and vehicles that you may need for your job. Similarly, essential household items. However, these may be at risk if they are worth more than a reasonable replacement. Higher value vehicles, however, may be sold and replaced with a much lower value alternative.
As mentioned above, your bank account will be frozen. All debit and credit cards must be passed over to the Trustee who will take control of your accounts. However, you will, generally, be able to access accounts for essential living expenses.
What you need to consider
Bankruptcy is a procedure that should not be taken lightly. There are several factors to consider before making the order:
- Bankruptcy is not an ‘in and out’ procedure. The process will, typically, last 12 months unless you do not cooperate.
- Your personal finances – such as salary – will be open to the public, along with assets, expenses and recent financial transactions.
- You must be completely honest and disclose all financial information.
- There are fees involved in filing for bankruptcy, such as the initial cost of £680.
- The order will affect your personal credit, leaving it difficult to improve later down the line.
The most important and critical thing to do at this point is to look for immediate debt advice. Our business rescue experts can provide guidance on the best procedure for your situation and work to resolve your cash flow issues.