What is bankruptcy?

Bankruptcy is a legally binding form of insolvency, which gives you some relief from your debt in return for you agreeing to certain terms.

You are protected from legal action and at the end of the term your outstanding debt is written off.

So, if you’re wondering how to get rid of debt, bankruptcy may be an option. It’s one way of dealing with debts you cannot afford to repay. It may be the best way for you to free yourself from excessive debts but the decision should not be taken lightly.

  • Once you have completed the bankruptcy you will be completely free from any unsecured debts that were included in the bankruptcy proceedings.
  • Bankruptcy provides automatic discharge after one year – less in some cases – and with that comes relative peace of mind.
  • Your assets, including your home and car, can be included and sold to raise money to repay creditors.
  • You won’t be able to act as a director of a company.
  • It may be difficult to obtain credit in future, as a record of the bankruptcy order will stay on your credit history for up to six years.

Your Bankruptcy questions answered

How long will bankruptcy last for you?

Bankruptcy normally lasts for 12 months. Once this has passed, regardless of what you owe, your bankruptcy will be discharged.

How much will it cost?

From the 21st July 2016 the cost of filing for bankruptcy is £680.

  • £130 for considering your application
  • £550 for managing your bankruptcy

You can make payments online and pay in instalments of as little as £5 if you can’t afford the full amount in one go.

You application can’t be submitted until the total amount is paid in full.

Will your credit rating be affected?

In short, yes. Your credit rating will be affected in the long term as the bankruptcy order will remain on your file for 6 years following bankruptcy.

Where is a bankruptcy application made?

The only way to apply for bankruptcy in England and Wales from 06 April 2016 is via an online form. You’ll submit your completed application electronically to an Adjudicator who will make a decision about your application.

Who would deal with your bankruptcy application?

Your application will be handled by an Adjudicator. The Adjudicator is a government official who works for the Insolvency Service, and their role is to review and make decisions about individuals’ bankruptcy applications.

What will happen to your assets in bankruptcy?

Once you’re bankrupt it is likely that your assets, such as your car, will be sold to pay your creditors. There are specific exclusions from this for items deemed necessary to live, for example:

  • Equipment for your work, such as tools or vehicles.
  • Household items needed by you and your family, such as clothing, bedding and furniture.

If you are a home owner, you may be required to sell your property. This depends on several factors, including who owns it, how much it is worth, and what equity you have.

If you have children you will generally be given 12 months to find alternative accommodation.

What will happen to your earnings in bankruptcy?

When you are bankrupt the official receiver, after looking at your income and taking into account expenses such as your mortgage, rent and household bills, may decide that payments should be made to your creditors.

You may be asked to sign an ‘income payments agreement‘, which will commit you to paying fixed monthly payments from your income for up to three years.

If your circumstances change you will need to tell the official receiver so that they can review these arrangements.

Do you need to pay ongoing commitments in bankruptcy?

Yes. All ongoing commitments such as rent and mortgages must be paid.

Alternative solutions

You do not need to become bankrupt simply because you are in debt and struggling to pay, there are other ways to get rid of debt. IVAs, trust deeds and debt management plans are all available to help you in a less intrusive way, enabling you to deal with your debt without having quite the restrictions placed on you that come with bankruptcy.

Bankruptcy does however exist for a reason. If you are in a position whereby you have absolutely no alternative, as you are unable to repay what you owe in a reasonable time, it may be a viable option to consider.

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To find out more about managing your debt and receiving free debt advice visit moneyadviceservice.org.uk or read the article Options for Paying off your Debt.

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