Bankruptcy should be considered only as a last resort. It can cause you serious difficulties in the future - making it hard to apply for a mortgage or enter certain professions such as law. However, if you are drowning in debt, bankruptcy could be an opportunity to free yourself from your creditors and make a fresh start.
Applying for bankruptcy
You can make yourself bankrupt, or can be made bankrupt involuntarily by any creditor to whom you owe at least £750.
If you think going bankrupt is the solution to your debt problems you need to fill in a bankruptcy petition and statement of affairs forms and take them along to your local county court (or the High Court if you live in London) where your case will be heard.
Forms are available from the court or online at www.insolvency.gov.uk. If you have any questions or need help filling in the forms give the insolvency service’s telephone helpline a call on 0845 602 9848.
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The petition form is your request to the court to be made bankrupt. On it you will have to outline your reasons for making the request.
The statement of affairs form shows all of your assets (anything what belongs to you that might be used to pay off your debts) and a list of your debts including the names and addresses of the creditors and the amount you owe to each one.
As well as these forms you must take along fees - a £525 non-returnable deposit and, unless you are claiming income-support, a £180 court fee.
At court you will need to take an affidavit to swear that that you have told the truth in your forms and then your petition will be heard.
The court can delay the proceedings to request more information, dismiss your petition because it feels other procedures would better suit your situation or make a bankruptcy order.
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A bankruptcy order
From the moment that this order is made you will become bankrupt, your bank and building society accounts will be frozen and your money will come under control of an official receiver - the trustee assigned to deal with your debts.
The official receiver is either a civil servant or a licensed insolvency practitioner, usually an accountant or a solicitor.
You will need to book an appointment to speak to an official receiver as soon as possible. Within 21 days you need to take along a list of your financial affairs including details of your assets (property, pensions, insurance policies etc.), the amounts of each debt, and to which creditor they are owed.
It is a criminal offence to make false statements, to conceal property or documentary evidence or to get rid of property before you go bankrupt.
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The official receiver will send your creditors a report outlining your financial situation and all assets belonging to you will come under their control, including your home.
If you live with your partner and/or children you might be given a 12 month period to allow you to make other living arrangements. At the end of this period the property will almost certainly be sold.
Any luxury items you own, such as a car or antiques will have to be handed over. You can keep tools, books, vehicles (if low value) and other equipment needed for business, as well as clothing, bedding furniture and basic household items.
Your assets will then be sold and the money made shared out amongst your creditors, as well as used to pay the official receiver’s fee.
Once you are bankrupt you will not be able to pay your creditors directly, except if you owe money on a student loan (this cannot be claimed in bankruptcy) or for court fines.
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While bankrupt you...
- May open a new bank or building society but must disclose the fact that you are bankrupt when you do. The lender may then impose restrictions. You won’t for example be allowed an overdraft or chequebook. If you have funds over and above what can be reasonably expected as living expenses you must inform your trustee.
- Must not obtain credit of £500 or more without first disclosing that you are bankrupt.
- Can’t trade in business under any other name unless you inform everyone involved of the bankruptcy.
- Will be restricted from taking up certain jobs and positions of public office.
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- Can’t take part in the promotion, formation or management of a limited company without the court’s permission.
- Must tell the official receiver about any assets you obtain during the period of the order.
There is a certain amount of stigma attached to going bankrupt and you will not be able to keep it a secret. Your name and status will be listed on the internet, in the London Gazette and in the local press.
At the end of bankruptcy
After a year your order should be automatically discharged, all of the restrictions listed above will be lifted and you are free to begin again. However, your bankruptcy will be registered with credit reference agencies and will remain on your file for a minimum of six years. Even after this time you might still have to declare your previous history, particularly when applying for a mortgage.
Once you are discharged there still might be assets that you owned when the bankruptcy began which the trustee has not yet dealt with, for example your family home.
These assets are still controlled by the trustee and can be dealt with at any time in the future, maybe several years after your discharge. In some cases a family member or friend can buy your interest, in which case they need to get in touch with the trustee to find out how much they’d need to pay.
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