Bankruptcy

Here's what you need to know about bankruptcy.

What is bankruptcy?

Bankruptcy is a form of insolvency. If you're made bankrupt then the following will happen.

• Owing Money - you won't personally deal with the people you owe money. A public official called the Official Receiver takes control of your money and property, and deals with your creditors
• Possessions - the things you own may be sold and used towards paying your debts, such as your house or car
• Debts - most types of debt are written off when you're discharged from bankruptcy, normally after 1 year

Going bankrupt involves going to court. It could cost you up to £680 for the form submission fee, or more if you use a solicitor. A solicitor isn't necessary.

Who can go bankrupt?

There's no minimum amount of debt required to go bankrupt. If the value of your unsecured debt is greater than the value of the belongings you own, such as property or vehicles, it may be an option for you. Unsecured debts include things like credit cards, personal loans and store cards.

If you have belongings like a house, car, savings, antiques or electrical goods,that you could sell to clear all your debts, but choose not to, bankruptcy could be refused. Belongings are known as assets. If you don't have a large amount of debt, there may be other options that are better for you.

As well as applying for bankruptcy yourself, someone else you owe money to can also apply to make you bankrupt, even if you don't want them to do so. For a creditor to make you bankrupt, you must owe at least £5,000.

If you're considering making yourself bankrupt or a creditor is trying to make you bankrupt, you'll need expert advice. You can get advice about your debt problems and bankruptcy from Insolvency enquiry line here.

Is bankruptcy right for you?

Bankruptcy can offer a fresh start to some people, because your debts are usually written off and your creditors can't take action against you. You'll also normally be allowed to keep certain things like household goods and enough money to live on during the bankruptcy period.

However, bankruptcy may have a serious impact on your day-to-day life. You have to follow certain rules called restrictions during the bankruptcy period. The bankruptcy restrictions you'll have to follow say that you can't:

• Get credit of £500 or more without telling the lender about your bankruptcy
• Act as a director or get involved with setting up, promoting or running a company without permission from the court
• Carry out a business in a different name from the one under which you were made bankrupt, without telling everyone you do business with the name under which you were made bankrupt
• Act as an insolvency practitioner

You could also lose your home, be barred from working in certain jobs and find it very difficult to get credit for several years. This means it's extremely important to find out about how bankruptcy would affect you, in your particular situation, and what other options you may have for clearing your debts before you decide to apply for bankruptcy. Your name and bankruptcy details will be published on the national register of bankruptcies, called the Individual Insolvency Register.

What happens at the end of bankruptcy?

When the bankruptcy order is over, you can make a fresh start and the money you owe is usually written off. In most cases, this can be after only one year. Most types of creditor have to stop action to get their money back following a bankruptcy order.

You need to complete two forms for the bankruptcy application to go through. These are called:

Statement of affairs

Bankruptcy order on debtor's petition

Bankruptcy may be suitable for you if all of the following apply:

• You can't see a way to pay your debts
• You don't have many belongings of value and there's little or no equity in your home
• It's unlikely that your situation will improve
• You live or carry out business in England, Wales, or have done so at any point in the last three years. You live permanently in another European state (apart from Denmark)

Bankruptcy may not be suitable for you if any of the following apply:

• You owe less than £20,000 and any belongings you own (other than basic household goods and a vehicle worth less than £1,000) are not worth more than £1,000 in total
• You work in certain occupations such as solicitor, accountant or estate agent, as your professional association may bar bankrupt people from membership
• You don't want your debt problems to become public knowledge
• Your circumstances might change in the near future. For example, if you're going to come into some money through an inheritance or payment protection insurance (PPI) reclaim, it might be a better option to use this to help deal with your debt problem

What is the cost of going bankrupt?

Going bankrupt may help you to get out of debt but it isn't a cheap option. You'll need to have enough money to apply for bankruptcy. If you're considering bankruptcy, you'll need expert advice. You can get advice about your debt problems and bankruptcy from your local Citizens Advice Bureau.

What fees and costs do you have to pay to go bankrupt?

If you apply for your own bankruptcy, you'll need to pay £680.00 to submit the application to the court. 

Can the court fee or deposit be reduced?

You may be able to apply to get the court fee cancelled or reduced. This is called remission. You can get remission if any of the following apply:

• You receive certain benefits or working tax credits
• Your annual income is below a certain level
• The money you have left over after paying your expenses is below a certain level

If you don't qualify for remission on any of these grounds, but you've suffered from an exceptional circumstance which means you're unable to pay the fee, it may still be possible to apply for remission.

To apply for exemption or remission from the court fee, you need to complete form EX160.This only applies to court fees. The deposit you pay can be reduced or cancelled by the court. 

Leaflets

Can you get other help with the costs of bankruptcy?

If you're struggling to raise the fee and deposit you need, a charity or trust fund may be able to help, although your application may take a long time to process. You can look for a charity to help with the cost of fees and/or deposit on the https://www.turn2us.org.uk/Find-Benefits-Grants

You need to pay the deposit which is inlcuded in the court application fee and the court fee, if you don't qualify for remission to the court, by one of the following methods:

• Cash
• Postal Order
• Cheque from a bank, building society or solicitor
• In some cases, a cheque from a trust fund or charity that is paying the fee or deposit for you - you'll need to check with the court to see if this is acceptable. You can't use a personal cheque to pay the fee or deposit.

What happens if creditors apply to make me bankrupt?

If one or more of your creditors applies to make you bankrupt, you don't have to pay these costs. More information on this can be found here.

Other ongoing bankruptcy costs

There may be other ongoing costs that will be paid from any assets and/or spare income you have, called the bankruptcy estate, before the rest of it is distributed among your creditors. These costs might include:

• Professional fees for solicitors
• Expenses for any professionals you have engaged to act for you, such as paying the fees of the trustee
• Any other administrative costs of your bankruptcy
• The cost of selling your home, such as estate agents' fees

Will all my debts be written off?

Some debts aren't automatically written off. These include:

• Magistrate court fines
• Ay payments a court has ordered you to make under a confiscation order, for example, for drug trafficking
• Maintenance payments and child support payments, including any lump sum orders and costs that have arisen from family proceedings, although you may be able to ask the court to order that you don't have to pay this debt
• Student loans
• Secured loans and other secured debts, such as debts secured with a charging order
• Debts you owe because of the personal injury or death of another person, although you may be able to ask the court to order that you don't have to pay this debt
• Social fund loans
• Some benefits and tax credits overpayments
• Your bankruptcy will show up on your credit reference file. This would reduce your chances of getting credit if you applied for it, as it would show you've struggled to keep up repayments

A note will stay on your credit file for six years from when you become bankrupt, meaning it could be some time before you can get credit in the future. This could make running a business, getting a mortgage, finding a new tenancy or getting any other form of credit extremely difficult for several years.

You might also struggle to open a new bank account after you're declared bankrupt and for some time after you've been discharged from bankruptcy.

What will happen to my bank account?

Once a bankruptcy order is made, any bank or building society accounts you have will usually be frozen immediately. This means that the following will happen:

• No payments can be made in or out of your account
• You should immediately stop using your cheque book and any account cards
• You should hand over your cheque book and account cards to the official receiver as soon as possible, unless they've specifically said you can keep them

This means you should do the following before you apply for bankruptcy:

• Organise alternative ways for dealing with payments and benefits that would normally be paid into your account
• Organise alternative ways for dealing with payment you normally make from your account, such as energy bills
• Withdraw enough money to manage your essential expenses and deal with any emergencies

The official receiver will find out from the bank what is in the account. If they decide that you need the money in the account for necessary living expenses they will tell the bank to release it to you. The bank will then decide whether or not it will let you carry on using the account. The official receiver is not involved in this decision. You may need to open a new basic bank account to use going forward.

What will happen to my pension?

If you're considering bankruptcy, you'll need expert advice. You can get advice about your debt problems and bankruptcy from your local Citizens Advice Bureau. If you've got one or more pensions, going bankrupt may affect your pension rights. This will depend on the following: what type of pension it is. Whether you're receiving an income from your pension yet or within 4 years of becoming bankrupt.

What happens if I receive a BRO court hearing?

If the official receiver wants a Bankruptcy restriction order to be made against you, you'll receive notice of a BRO court hearing. You'll either get a letter from them saying that they intend to apply for a BRO, or you'll get notice of a BRO court hearing.

Here is what to expect next:

• The court will fix a hearing date, normally at least 6 weeks after the official receiver applied for the BRO hearing
• You'll be sent a copy of the report and application, including details of what the official receiver believes you've done and any supporting evidence they have
• You must acknowledge that you've received the documents within 14 days
• You can decide whether you want to challenge or accept the BRO application
• If the hearing goes ahead the court may make a BRO, dismiss the application or delay proceedings while more evidence can be gathered
• If the BRO is made, a copy is sent to you and the details go into the public insolvency register until the end of your BRO

What happens if I accept the BRO application?

If you accept the allegations that are made against you by the official receiver, you can offer to enter into a bankruptcy restrictions undertaking (BRU). This has exactly the same effect as a BRO but means you won't have to go to court. If you offer to go into a BRU, this will normally be shorter than if the court made a BRO.

What happens if I want to challenge the BRO application?

If you disagree with the BRO application or think it's unfair, you have 28 days to give the court your evidence showing why this is the case. This will be considered at the BRO hearing. When deciding whether you want to challenge the BRO application, think about the following:

• If you dispute the allegations that have been made against you, do you have any evidence to support your case?
• If you don't have evidence to support your case, do you want to go through the stress of a court hearing?
• Thinking about your personal circumstances, would it be better to accept a BRU with a shorter period of restrictions than to run the risk of having a BRO made against you with a longer period of restrictions? It's a good idea to take independent legal advice if you want to challenge the BRO application.

If there is a delay in investigating your case or the court can't fix a hearing date for some time, the official receiver might apply for an interim BRO against you. If the court makes an interim BRO, you'll have to keep following the bankruptcy restrictions until the hearing.

How does the court decide whether to make a BRO

When it is deciding whether to make a BRO, the court and the official receiver will look at your behaviour before and after the bankruptcy order was made. They will ask themselves whether the public needs protecting from you, looking at things like:

• The extent to which your creditors have lost out
• How aware you were of your situation at the time of the behaviour. The worse your behaviour, the longer the BRO is likely to last.

If a BRO is made against you, the restrictions you've had to follow since being declared bankrupt will be extended for up to 15 years. 

Can I make a PPI claim after bankruptcy?

If you took out a PPI policy before you went bankrupt, you're highly unlikely to be able to make a claim or to keep any money that comes out of a claim. 

If you've been discharged from bankruptcy, this doesn't change the situation. The official receiver or trustee still owns the right to claim any money that results from a claim, unless they've agreed to transfer the right back to you.

If you forgot or didn't know about a debt when you applied for bankruptcy, you can have it added to your bankruptcy, as long as it isn't a type of debt that bankruptcy doesn't cover. If this applies to you, you should contact the official receiver or bankruptcy trustee immediately. They will add the debt to the bankruptcy.

What if creditors are still chasing me?

When you're declared bankrupt, most types of creditor must stop taking any action against you to get you to pay what you owe. This means:

• They mustn't do anything to try to get money from you, such as sending you letters or authorising debt collectors to visit you, although they can still send you letters to tell you the balance of your account
• They mustn't start any new court action against you, unless they get express permission from the court to do so

What should I do if creditors are still contacting me?

• Check that the creditor is contacting you about a debt that's included in the bankruptcy
• Check whether they're asking you to pay, or are just sending statements showing how much is outstanding on the account
• If the debt is included in the bankruptcy, don't pay the creditor anything
• If the debt is included in the bankruptcy, tell the creditor to contact the official receiver or bankruptcy trustee
• If the creditor won't co-operate, contact the official receiver or trustee yourself to tell them about the situation

If the creditor is chasing you for a debt that isn't included in your bankruptcy, you'll need to carry on dealing with them yourself. If you think the debt should be included in the bankruptcy but you forgot to declare it, you'll need to contact the official receiver. It may be possible to have the debt added to your bankruptcy.

When can I cancel bankruptcy?

You can apply to have your bankruptcy cancelled for any of the following reasons:

• You've paid your bankruptcy debts and the bankruptcy expenses in full or have made arrangements to secure or guarantee them, for example against property that you own
• If you were made bankrupt by one or more of your creditors but you think the bankruptcy order should never have been made, for example, because you actually owed less than £5000 

What are the effects of cancelling bankruptcy?

The cancellation of bankruptcy puts you back into the same position legally as if the bankruptcy order was never made. However, there are some things that can't be reversed and you may also need to take action yourself to get some records changed.

A few things to be aware of if you're cancelling bankruptcy:

• You'll become liable for paying any of your debts that haven't yet been paid in the bankruptcy
• You'll lose any property that the official receiver or trustee has already sold or disposed of
• Any property or belongings that haven't yet been disposed of will be given back to you
• The record of your bankruptcy will be removed from the Insolvency Register five days after the cancellation
• If a bankruptcy notice has been registered against a property you own, you can apply to the Land Registry to have the notice removed
• I's your responsibility to tell credit reference agencies about the cancellation of your bankruptcy, so that they can update their records and your credit reference file.

How do I apply to cancel bankruptcy?

• Complete an application form, called Form 7.1a, which you can get from the court or from the https://www.gov.uk/government/organisations/insolvency-service

You'll need to pay an application fee, but depending on your circumstances, you may be able to get this waived or reduced - ask the court.

• Make a written witness statement, saying why the bankruptcy order should not have been made or that you've paid your debt
• Return the application form and witness statement to the court, which will then set a date for a hearing
• Notify the official receiver or bankruptcy trustee of the hearing and send them a copy of your application and witness statement
• Attend the court hearing

The court will decide who should pay these costs when it hears the case. If your bankruptcy order is cancelled because it shouldn't have been made, any bankruptcy restrictions orders or bankruptcy restrictions undertakingsthat have been made against you will also be cancelled.

What to do if your creditors have agreed an IVA?

If your creditors have agreed your proposal for an individual voluntary arrangement (IVA), either you or the supervisor of the IVA must apply to the court for your bankruptcy to be cancelled. This can only be done 28 days after the creditors have agreed to your proposal. You can apply using the same procedure as an application where the bankruptcy order shouldn't have been made. Click here to find out more about individual voluntary arrangements.