We don’t want to cloud your judgement either way. Our aim is to give you information that will help you understand the process of Bankruptcy.

What is Bankruptcy?

Bankruptcy is one of the ways of dealing with debts you cannot pay; debts which outweigh the value of your assets.

Going Bankrupt (also known as ‘personal insolvency’) is a formal legal arrangement designed to give your creditors (people you owe money to) as much back as possible, as quickly as possible, so you’re released from your debts.

The amount your creditors receive when you go Bankrupt will be based on the assets you have. For example, property (including your home, if you own it), cars or other vehicles, savings, and anything else you own that could be sold; generally items that are realistically worth £2,500 or more.

Before we go into the actual process, just so you know what to expect, it’s important to understand that Bankruptcy raises many issues – for some it can cause great distress and anxiety, for others it can be somewhat overwhelming. Not only for those declaring Bankruptcy, but also for the family, relatives and friends of those involved. And there are alternatives to declaring yourself Bankrupt (see below). While for some people there is no alternative, Bankruptcy should only be taken as a last resort.

What’s the process involved in becoming Bankrupt?

The process for going Bankrupt in the UK varies depending on the region you are in. English Insolvency law applies in Wales too, so the process is the same in both England and Wales. Declaring Bankruptcy has four stages:

Stage 1

You seek an initial consultation, which is free and confidential, with a Bankruptcy specialist who will assess if you qualify for Bankruptcy. Most of these specialists usually carry out an initial assessment with you over the telephone once you’ve given them a few details – or filled out a few details online.

Stage 2

If you qualify for Bankruptcy and the specialist also feels it’s the right choice for you to make they will send you a Bankruptcy pack to complete where you will provide them with more detailed and complete information of what your debts are and who you owe. You will also need to disclose details of exactly what your income and expenditure is. Your specialist will then write to your credit companies informing them of your wishes to go Bankrupt.

Stage 3 The specialist will help you complete your Bankruptcy application form and you will then sign it. This application will then form part of your application to your local County Court.

In England and Wales, going Bankrupt involves an application to the court which anyone can make including individuals, sole traders and members of a partnership. In the case of companies, different rules apply. See Insolvency.

An application will then be made to the County Court for your Bankruptcy to be dealt with there. This is commonly known as ‘Petitioning the court for Bankruptcy’. Either you or one of your creditors (only if you owe £750 or more) can petition the court. Only the court can make you Bankrupt. You will then be declared Bankrupt.

Stage 4

As soon as you are declared Bankrupt by the court, your assets will be handed over to a person appointed with the job of managing your Bankruptcy called a ‘trustee’. The trustee will either be a:

• Licensed Insolvency Practitioner; or
• Government official called The Official Receiver.

You will have to go and meet with him or her and they will check whether you have anything to pay in your Bankruptcy Order and determine if you have any assets that can be sold to raise the money for paying your creditors.

Due to personal circumstances, no two Bankruptcy proceedings are exactly the same therefore the benefits and risks of Bankruptcy may well be different for you compared with another. However, there are some broad general points applicable to most Bankrupts.

What’s the benefit of going Bankrupt?

• Your Bankruptcy will usually only last 12 months (i.e. it will be over in a year).
• If you have no major assets, then your day-to-day life will be largely unaffected.
• All unsecured debts will be written off (in most cases), meaning your creditors will be unable to take any further action against you in relation to those debts.
• You will be free to get credit of up to £500 (even whilst Bankrupt).
• If you own a home with a lot of equity in it, you MIGHT be able to protect your home by selling your share of the property to your spouse, partner or a relative after any debts secured on it have been paid.
• You can handle your own Bankruptcy without any professional help i.e. from a lawyer (but it’s not recommended).

Bankruptcy may give you a lot of protection from your creditors, but it also comes with a number of burdens and restrictions that you will comply with until the Bankruptcy is completed and you are freed, or what’s known as ‘discharged’, from it.

What’s the risks of going Bankrupt?

• You will lose control of any assets (usually over £2,500).
• It is an offence to obtain credit of more than £500.
• The following debts cannot be included when going Bankrupt:
  • Court fines
  • Debts from family proceedings – for example, child support
  • Budgeting loans or Social fund crisis loans
  • Student loans

• You will still have to pay some costs to become Bankrupt, even if you handle your own Bankruptcy.
• If you have any debts where a third party has acted as guarantor (for example a friend, family member or business partner) then they may be pursued for the total balance of your debt after going Bankrupt.
• If you have a business then it could be closed down. We strongly recommend you seek professional help if you run a business (particularly if you are a sole trader or member of a partnership).
• Your employment may be affected. In some circumstances your employer may be aware of you going Bankrupt and in some professions you are barred if you are made Bankrupt.

Your Bankruptcy is public knowledge and will be entered on the public register. The Official Receiver uses official publications such as the ‘London Gazette’ and Individual Insolvency Register to advertise your Bankruptcy in order that credit reference agencies like Equifax and Experian can update your credit file to show you are insolvent.

If you are acting Power of Attorney, looking after someone’s property or finances, and you are declared Bankrupt, your Power of Attorney will come to an immediate end (or be invalid if you are granted Power of Attorney whilst declared Bankrupt). It would be advisable and courteous to inform the donor or principal.

Your bank, landlord and mortgage, pension or insurance provider will be told of your Bankruptcy. If you are buying a property with a mortgage, a Bankruptcy search will be done on behalf of the bank or building society. This kind of search will bring to light any court proceedings pending against you which will need to be pointed out to the lender.

How much does it cost to go Bankrupt?

Even if you try to handle everything yourself, that is, you don’t get any advice from professional advisers (such as lawyers), you will incur certain costs that are absolutely unavoidable.

You will NOT be able to go Bankrupt until these costs are paid in full:

• You can only apply for Bankruptcy online.  It costs £680.
• Professional fees can vary but will generally start from £500 and could go into the thousands.

The good news: some charities will offer help to cover the costs of going Bankrupt.

The bad news: each charity has its own qualifying criteria in relation to whom they will and will not help. Unfortunately, given the state of the UK economy since the credit crunch and resulting downturn, most are over-subscribed.

Can I go Bankrupt twice?

In a word… Yes.

However, if the Official Receiver feels you’ve been dishonest, or just careless, they may extend the restrictions of Bankruptcy for up to 15 years.

For example:

• Irresponsible borrowing – like taking on debts you knew you could not repay.
• Providing false information to get credit – not telling the truth on an application form for a mortgage, loan, car finance or credit card.
• Selling any of your assets for less than their real value.
• Going Bankrupt twice within a six year period.

What next?

Bankruptcy should be a last resort. If you’re determined to go ahead, it is important you get as much information as possible to help you make the right choices in making such a big decision. Due to the potentially devastating impact of a poorly handled Bankruptcy, it is highly recommended that you seek the advice of a professional before even considering Bankruptcy as an option.

Having a chat with a qualified solicitor, even just for an initial chat, will give you the opportunity to explore your options.

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic.