Considering Bankruptcy: When to Do So and the Implications

In general many people see going bankrupt as a last resort as there are other options available to those who are deep in debt and cannot continue to make payments. Going bankrupt must be considered very carefully with debtors seeking expert advice if this is the road they are to take. Here we take a look at what bankruptcy involves, how to go about it and what the implications are for anyone who declares themselves bankrupt.

Bankruptcy Explained

Bankruptcy is a court order that a debtor can apply for if they cannot meet payments for their debts. Many debtors think that only they can apply for bankruptcy themselves but this is incorrect as a creditor can apply to make a debtor bankrupt even though this may not be what the debtor wants.

Someone who owes money and has no means to pay off their debts or thinks it will take many years to clear them may apply for bankruptcy. Once a debtor is declared bankrupt they no longer are obliged to deal with their creditors as this is done by an Official Receiver who deals with the creditors on a debtor’s behalf and looks after the debtor’s money assets and property.

Once the bankruptcy order runs out, which can be after one year depending on the length of the order, the debtor can begin again with a clean slate, while the debt is written off. If a creditor was taking court action against you they will have to cease the action once you are declared bankrupt in order to get their money back.

Looking at and Sorting Your Debts First

Those thinking of applying for bankruptcy must first sort out their debts and finances in order to assess if bankruptcy is appropriate. Facing the problem head on is the best way to sort out debt. Those who bury their heads in the sand will soon find this tactic simply doesn’t work. There are a number of things to look at when sorting out your debts which are,

  • Firstly look at what you owe and who you owe it to, making a list you can refer back to
  • Decide which debts are the most urgent such as debts you have not paid for some time and pay them first
  • Work out your incomings and outgoings to assess if there is anything left to pay your creditors
  • Consider if there are options left for paying off less urgent debts. This can be done by negotiation with creditors
  • Contact a professional organisation that may be able to help you work out your finances such as the Citizens Advice Bureau

If you think that bankruptcy is your only option then read on.

The Advantages of Going Bankrupt

There are of course some advantages to declaring yourself bankrupt with many debtors feeling relieved that the pressure has been taken off their shoulders and passed onto the Official Receiver who will deal with their creditors once an order is issued. When someone goes bankrupt it does not mean that they will be left destitute and lose everything as they will be left with enough funds to live on and keep essentials such as household goods.

Most kinds of court action that have been instigated by creditors have to be stopped in order for them to get their money back, while in a few cases bailiffs may still be able to take goods away. Once the order ceases of course the debtor can make a fresh start and their debt is written off.

The Disadvantages of Going Bankrupt

Where there are advantages to a process there are always disadvantages to consider. Such is the case when considering applying for bankruptcy. Disadvantages include

  • Going bankrupt is not free as debtors can expect to pay up to £700 maybe more in some cases
  • Debtors who own their own property may have to sell it
  • Debtors will lose luxury goods such as cars
  • Declaring bankruptcy may affect your employment as some professions do not allow a bankrupt to work for them. Professions such as those involved in financial services are an example although in general being a bankrupt should not affect your job
  • If you own a business it may have to be closed and employees may lose their jobs
  • Bankrupts do not have the option of keeping their declaration private as anyone can gain access to the Insolvency Register, while even local papers may print details of your case
  • Once declared bankrupt a person may not apply for credit
  • The bankruptcy order remains on your credit rating file for six years after the order ceases

Those who do not cooperate with the Official Receiver may find a Bankruptcy Restriction Order is made against them. This can last for up to fifteen years therefore it is in the debtor’s interest to cooperate. Debtors who are found to have taken on large debts knowing that they had no chance of paying them off may also be affected.

The Bankruptcy Procedure

In order to be declared bankrupt debtors must petition the court, while the court will decide whether to allow a debtor to become bankrupt or not. If the court agrees, the debtor will have a bankruptcy order issued against them, meaning they are officially bankrupt.

The first thing to do if you are to go ahead is to find out where your local county court is situated. This information can be accessed at the HMCS website if you are uncertain which court covers your area.

Next you will fill in a Bankruptcy petition and a Statement of Affairs form listing all the people you owe money to. This includes creditors you may be in dispute with as to whether you owe them anything at all.

The form will ask for details of any bank or building society accounts you hold and you must declare these with honesty. Valuable assets also have to be listed such as cars and luxury items. Always keep a copy of any forms you fill in so that you may refer to them if required at a later date.

Do I Have to Go to Court?

Yes you will have to attend court in order to swear an affidavit which is where you swear to the court that the details you have submitted on the forms are true and accurate. If you fail to declare property or possessions on the form or lie about anything to do with your declaration you may face prosecution, a fine or even get a custodial sentence. Disposing of property in order to not declare it is also an offence.  The court requires the forms plus two copies, the fee and a deposit too, while it may hear your case immediately following your affidavit or set a time for the future when you will be required to attend.

What Happens Next?

Assuming the court grants your application you will be awarded a bankruptcy order. Your bank and any other accounts you have will then be frozen and put in the hands of the Official Receiver. It is advisable before this happens that you make sure you have adequate funds to live on in the foreseeable future as you will not be able to access your accounts once the Official Receiver is in charge.

The Official Receiver will then arrange to see you in order to determine what property and possessions you have. It’s a good idea to take a copy of your declaration form with you to refer to. Once you have met with the Official Receiver they will inform your creditors that you are now declared bankrupt and send them a report outlining what your financial situation is.

Once your assets are sold the receiver will pay the costs of the bankruptcy in the first instance. This includes the official receivers own costs too.

How will I Know When My Bankruptcy Order Ends?

Bankruptcy orders usually last for one year only when the Official Receiver will inform you that the order has ceased. Any debts that haven’t been paid off are then written off. In some cases some debts are not written off meaning debtors will have to make arrangements to pay them off.

If you want proof of discharge you can ask the Official Receiver to put it in writing for you. The receiver will not charge a fee for doing so. The court will also issue a certificate of discharge which costs £70.00 plus £10.00 per copy.

Restrictions Affecting Bankrupts

Certain restrictions apply to a person who is made bankrupt, while anyone breaking the restrictions may be prosecuted.  Restrictions will last until the bankruptcy order ceases but may be extended if the Official Receiver deems it appropriate. Restrictions include

  • A bankrupt may not borrow more than £500 without informing the lender that they have been declared bankrupt
  • They may not create a company or manage and promote a company without the courts permission to do so
  • May not act as a company director
  • May not work as an authorised debt specialist
  • May not manage a business under an alternative name without informing clients or anyone they do business with

Bankruptcy Registers

Once your bankruptcy order ends you may wish to have it removed from certain registers. The Individual Insolvency Register updates every three months therefore there is no need to apply here to have the order removed. Other registers you may wish to apply to include

Land Charges and Land Registry

You may apply to the Land Charges department in order to cancel an entry enclosing a copy of your court order permitting the cancellation. This costs £1.00. The same goes for the Land Registry department.

Land Charges Department

Seaton Court

2 William Prance Road

Plymouth

PL6 5WS

Land Registry Bankruptcy Unit

Seaton Court

2 William Prance Road

Plymouth

PL6 5WS