Bankruptcy is a formal court procedure which you can start with no minimum debt level or which one or more of your creditors can start if they are owed £5000 or more.
Your assets (with certain exceptions) are sold to help pay your creditors.
However, you can usually keep your personal belongings, the contents of your home and your tools of trade (which may include your car) unless they have a high value.
If you have surplus income after meeting your essential household and personal expenses, you will have to make payments out of your income for up to 3 years.
Your assets and income are dealt with by a licensed and regulated insolvency practitioner or by a government official called the official receiver.
Bankruptcy usually lasts for 1 year, and once you have been freed (discharged) from your bankruptcy, you are released from your debts (with certain exceptions).
Please note that as of April 2016 the following changes will occur:
- The bankruptcy application will need to be completed online with no paper forms our court attendance required.
- Any applicant will be required to pay a total £655 and this will be able to be paid in instalments.
- The changes due will only concern the application process and not how the bankruptcy affects you as an individual
Advantages of Bankruptcy
- Debts are written off, with certain exceptions explained below.
- Creditors can’t take further action unless the debts are secured on your home or other property.
- It allows you to make a fresh start after only a year.
- You may be able to avoid having to sell your home if your spouse, partner or a relative can buy your share of its value after any debts secured on it have been paid.
Disadvantages of Bankruptcy
- Your bankruptcy is entered on a public register and is advertised.
- You may be forced to sell your home if you are an owner occupier (see below)
- If you apply to the court for your own bankruptcy, you will have to pay a court fee and deposit totalling £705 (we can assist you getting this fee reduces if you are on a low income)
You will remain liable to pay certain debts – in particular:
- student loans
- debts arising from family proceedings; and
- budgeting loans and crisis loans owed to the Social Fund.
- Any business you have will almost certainly be closed down.
- Your employment may be affected.
- Certain professionals are barred from practising if they are made bankrupt.
- You can’t act as a director of a company or be involved in its management unless the court agrees.
- You will be committing an offence if you get credit of £500 or more without disclosing that you are bankrupt.
- You may have a bankruptcy restrictions order* made against you for 2 to 15 years if you acted irresponsibly, recklessly or dishonestly.
- An order that will place restrictions similar to those in force while a person is bankrupt, which the official receiver may apply for.
Bankruptcy effects on your home
The value (or ‘equity’) in a property can be worked out by taking away from the value of the property the amount you owe under any mortgages and secured loans.
We use the term ‘beneficial interest’ to describe your share of the equity. If the property is solely owned by you, your beneficial interest will usually be all of the equity. If the property is jointly owned with someone else, your beneficial interest will be part of the equity.
If you own property then this might be sold depending on whether it has any equity in it. If your partner and children live there then there are rules about how quickly this can happen.
Contact us for advice. Once you have gone bankrupt, your beneficial interest in your home is transferred to the official receiver or trustee.
If you are the sole owner then the whole of the value in the property is transferred to the official receiver or trustee.
With jointly owned property the official receiver or trustee is usually only entitled to the bankrupt person’s share of the equity (that is their ‘beneficial interest’).
Depending on your circumstances, you may be considered to have a beneficial interest even if you are not named on the mortgage. This is a complex area so contact us for advice.
It may be possible for the joint owner or family and friends to make an offer to the official receiver or trustee to buy out your share of the equity. This can be particularly helpful if there is little or no equity.
For more information about bankruptcy and for the court forms you need to go bankruptcy please see the government Insolvency Website.