A form of insolvency, find out more information here
If your income is low Bankruptcy can help rid you of your debt that would otherwise take years to clear, it is a legal process where your debts are usually written off, and your finances will be overseen for a year by an official receiver from the government insolvency service. After you’ve been declared bankrupt, your creditors will write off your unsecured debts. This allows you to make a fresh start. Bankruptcy usually lasts for 12 months and you’ll have many financial restrictions during this period. When your bankruptcy ends, you’ll be ‘discharged’ from it.
There are no maximum or minimum debt levels you must have to go bankrupt. However, it is important to consider the advantages, disadvantages, costs and risks before making any decision regarding bankruptcy.
Please find below an outline of the Risks/Disadvantages, Costs and Advantages of Bankruptcy.
Bankruptcy fees vary throughout the UK, in England and Wales you pay a £130 fee to the adjudicator and £550 to the official receiver, a total of £680. You must pay the fees before your application is submitted.
When the bankruptcy order is over you can make a fresh start, in many cases this can be after a year.
The pressure is taken off you because you don’t have to deal with your creditors.
You will receive no further contact from your creditors and creditors have to stop most type of court action to get their money back following a bankruptcy order
All your unsecured debt is usually written off.
The official receiver may order you to make monthly payments to them for 3 years after your bankruptcy, if your income is high and you can afford to do so.
If you own your home, it might have to be sold and the money used towards paying your bankruptcy. Some of your other possessions might have to be sold, for example, your car and any luxury items you own.
Going bankruptcy can affect your immigration status.
Bankruptcy is not confidential and you will appear on a publically-accessible register.
Bank Account: During bankruptcy, your current bank is very unlikely to allow you to keep your account if you have an overdraft or other debts with them. Even if you have no debts with them, most banks will close your account when you go bankrupt and it’s likely your account will be frozen for 2-7 days while the official receiver dealing with your bankruptcy checks your transaction history. You’ll normally have to open a new account with a different bank, and your choices may be limited.
Restrictions: will last until you’re discharged, 12 months after you go bankrupt. If the official receiver finds that your bankruptcy happened because you acted irresponsibly or dishonestly, they can extend the length of time that restrictions apply. This is called a bankruptcy restriction undertaking or order, and can last up to 15 years. This might happen if, for example, you committed fraud, tried to hide assets, or ran up debts through gambling or similar.
Credit File: negative impact on your credit file, you may struggle to take out further credit in the future. During your bankruptcy you will be restricted from taking out any further credit. You may find it difficult to take out credit, as bankruptcy will remain on your credit file for six years.
Breaking Restrictions: If your official receiver suspects or finds you breaking these restrictions, they’ll investigate and may need to interview you, or get more information. If you don’t cooperate, they can also ask the court to suspend your discharge from bankruptcy.
Breaking these restrictions can be a criminal offence, and could lead to a fine or imprisonment in extreme cases. You could also get a bankruptcy restriction undertaking or order, which makes the restrictions last longer.
Job: It may have implications for your job- for instance you will not be able to act as a company director. Some professions don’t let people who have been made bankrupt carry on working.
Most debts that you have when a bankruptcy order is made will be covered by your bankruptcy. However, not all types of debt are written off.
Debts that aren’t automatically written off include the following:
- Magistrates court fines
- Maintenance payments and child support payments
- 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.
- Debts taken out by fraud, in joint names or business debts that were taken out in partnership.
These people you owe these debts to can still take action to get their money back. This means before you apple for bankruptcy you should work out how you’ll deal with any debts that aren’t covered.