Bankruptcy FAQs
Getting to grips with the important aspects of bankruptcy is going to be crucial part of your decision making process.
That's why it's so important to try to focus on the aspects of bankruptcy that are most relevant to you and, specifically, to your personal circumstances.
So, to help you focus on the information you need, here are the most frequently asked questions on the bankruptcy debt solution.
Bankruptcy Frequently Asked Questions
Where necessary, some of the answers below will have a dedicated page with a more in depth answer. Simply follow the link where you see the highlighted phrase 'Read more'.
- What is bankruptcy
- What are the bankruptcy costs
- Will I have to go to court
- What about my assets
- Can I sell assets before bankruptcy
- What assets can I keep
- What about my bank account
- What about monthly repayments
- What debts will my bankruptcy clear
- What debts will survive my bankruptcy
- What about secured debts
- Will it affect my employment
- What about professionals
- Can I still be a Director of a limited company
- What about business partnerships
- What about sole traders
- What about employed personnel
- How long will I be bankrupt
- What is a Bankruptcy Restriction Order
- What about my credit rating
- How do I rebuild my credit rating
- What alternatives do I have
- IVA vs. Bankruptcy
What is bankruptcy?
The definition of bankrupt is "an insolvent person" which in turn means "a person not able to pay their debts". You can be declared bankrupt in two ways, either by petitioning for your own bankruptcy or by having one of your creditors petition for your bankruptcy.
The Government revamped the laws on insolvency in 2004 with the Enterprise Act. One of its aims was to simplify the process of petitioning for bankruptcy.
Any person who owes more than £750 can be declared or can declare themselves bankrupt. The only difference is who pays the costs for the bankruptcy; the end result is the same. Read more.
Back to FAQsWhat are the bankruptcy costs?
The cost of a bankruptcy is made up of two parts.
There is an Adjudicator fee of £130 and a deposit to the Official Receiver of £550.
If you are a married couple and you are both applying for bankruptcy, you will each have to pay these fees separately. These figures are subject to change periodically and should be checked at the time of application.
If you apply to make yourself bankrupt, then you bear the costs, however, if you are declared bankrupt by one of your creditors petition for your bankruptcy then that creditor pays the costs.
Back to FAQsWill I have to go to court?
No, since April 2016 all bankruptcy applications are made online.
The Adjudicator will notify you if your application to be made bankrupt has been successful, after which you will have an interview with the Official Receiver. You may also be interviewed by a Trustee in Bankruptcy if you have any realisable assets.
Back to FAQsWhat about my assets?
If you have any assets they may be sold by the Trustee to offset any court costs and to settle as much of your outstanding debt as possible. This includes all assets, particularly:
- Equity in property
- Time shares
- Property abroad
- Second homes
- Caravans
- Mobile Homes
- Savings
- Investments
- Shares
- Unassigned endowments
- Cars with a value above £2,500
- Personal luxury goods
- Valuables such as jewellery.
The Official Receiver will only have a right to the value of your share of any shared ownership properties and, when made available, will accept 3rd party funds in lieu of your equity. But, if not available, the Official Receiver can force the sale of your asset to release your share of the value for the benefit of creditors, even against the wishes of the co-owner.
Back to FAQsCan I sell assets before bankruptcy?
If the Official Receiver believes you have sold any of your property or other assets at an unrealistically low value, prior to your bankruptcy hearing and, in doing so, have disadvantaged your creditors, they have the power to reverse the sale.
The practice of selling your assets like this is called 'Making a transfer at undervalue' and, when the Official Receiver believes the transfer was deliberately undertaken to defraud your creditors, there is no time limit as to how far they can go back to right the wrong.
An example of a transfer at undervalue would be when someone sells their share in their home to their partner for significantly less than its true market value.
Back to FAQsWhat assets can I keep?
There are strict guidelines that determine what the Official Receiver and Trustee can take from you for the benefit of your creditors.
Fortunately, they are not able to take the tools of your trade, needed for the continuance of your income.
Also a modest car with a value of no more than £2,500 can be retained, as can household contents such as TV, stereo, computer, settee, washing machine etc. or other non-luxury goods would not normally be at risk.
Back to FAQsWhat about my bank account?
The Official Receiver will contact your bank to establish what funds are held there and where you need those funds for your day to day living costs. If you do, they will be released to you.
When your bank are informed of your bankruptcy order, the bank will freeze your bank account. It will be the banks decision as to whether they will allow your account to stay open.
Currently, only Barclays Bank have a policy which allows bankrupts to hold a basic account.
Back to FAQsWhat about monthly repayments?
The Official Receiver will look at your current financial status and undertake an analysis of your financial circumstances. They will make a decision as to whether you can afford to make monthly payments to your creditors. If they decides you can afford to make payments above £20, they will subject you to an Income Payment Agreement (IPA) detailing how much you will be expected to pay each month.
If you do not agree to the IPA they can impose an Income Payment Order, an official Court Order forcing you to pay. These payments can begin at anytime during your bankruptcy and will continue for up to three years from the time they commence. Failure to comply with the IPO is a criminal offence.
If you refuse to pay you can be forced to do so through another Court Order known as an Attachment of Earnings Order. This is where your IPO payments are taken out of your wages at source by your employer and paid to the Court.
Back to FAQsWhat debts will my bankruptcy clear?
This is a list of the most common debts cleared through bankruptcy:
- Bank overdrafts
- Bank loans
- Credit card debts
- Store card debts
- Payday loans
- Unpaid utility bills
- Unpaid mobile phone bills
- Catalogue debts
- Mortgage shortfalls
- Hire purchase shortfalls
- Unpaid HMRC tax bills and VAT
- Overpayment of benefits
What debts will survive my bankruptcy?
These debts will not be cleared by your bankruptcy:
- Mortgages
- Secured loans
- Hire Purchase agreements
- Council tax arrears
- Court fines
- CSA payment arrears
- Student Loan Company loans.
- Debts arisen through fraudulent activity.
- Personal liability claims.
- Lump sum or costs for Family proceedings.
What about secured debts?
Bankruptcy does not remove your responsibility towards the upkeep of your secured debts. If you have car hire purchase agreement and the Trustee allows you to keep it, you must continue the monthly payments or risk repossession.
Similarly, if you are a homeowner with no releasable equity, and your mortgage commitments are considered reasonable, you will be allowed to keep your property, but you will be expected to maintain the mortgage repayments for yourself.
If your mortgage repayments are consider unreasonably high in relation to your needs, then you could be required to reduce your living costs by selling your property and moving into rented accommodation.
Any money generated by such a move would be added to your IPO or IPA.
Back to FAQsWill it affect my employment?
Bankruptcy will have a varying affect on your ability to continue in your previous occupation, depending on what you do for a living, and the position you hold.
Back to FAQsWhat about professionals?
Certain professions prohibit bankruptcy as a debt solution. Accountants, solicitors, finance industry employees, police officers, prison officers, senior civil servants, and members of the armed services all face potential problems in declaring themselves bankrupt, as will members of parliament, local politicians and councillors.
It is advisable, therefore, to make discrete enquiries to the relevant professional body or regulator to establish the extent of the sanctions that you may face, before you declare yourself bankrupt.
Back to FAQsCan I still be a Director of a limited company?
Whilst bankrupt you cannot be a director of a limited company, furthermore, if you are declared bankrupt any company shares in your name could be considered an asset in your bankruptcy.
Back to FAQsWhat about business partnerships?
If you are in a partnership, the partnership may be dissolved and your share of any value in that partnership may be realised for creditors.
Back to FAQsWhat about sole traders?
If you are a sole trader you can continue to trade, but you cannot have credit agreements with suppliers in excess of £500, which should be cleared each month.
Back to FAQsWhat about employed personnel?
Employees are not normally affected in a bankruptcy ,but certain employment may be restricted, especially if it involves dealing with financial matters or handling cash. If you are in doubt, you should consult your terms of employment or speak to your Human Resources manager.
Back to FAQsHow long will I be bankrupt?
The majority of people made bankrupt since the introduction of the Enterprise Act 2004 are now automatically discharged from bankruptcy after 12 months and sometimes sooner. Read more.
Back to FAQsWhat is a Bankruptcy Restriction Order?
When necessary, the Court can lengthen the term of bankruptcy by imposing a Bankruptcy Restriction Order (BRO), for anything up to 15 years, if it feels that a larger sanction is required. This would normally only apply in circumstances of fraudulent activities, or severely irresponsible spending. Read more.
Back to FAQsWhat about my credit rating
Bankruptcy will have a profound affect on your credit rating for a minimum of 6 years from the date of your bankruptcy hearing.
During the period of your bankruptcy you are prohibited from applying for credit in any form, however when you are discharged from bankruptcy you can start to re-apply for credit. Creditors will automatically refer to the insolvency register for information about your credit worthiness, so getting credit is certainly not guaranteed immediately.
Back to FAQsHow do I rebuild my credit rating
Rebuilding your credit rating after a bankruptcy is not impossible. Start by approaching the bank you have used through your bankruptcy, explain that you are now discharged from bankruptcy and ask them if you could have a credit card with a small limit. The idea behind this is to spend modest amounts on the card in the knowledge that every month you will pay it off in full. This will have the effect of proving to the bank, and indirectly other lenders, that you are now in a position to settle any credit each month thus improving their confidence in you. If you continue to do this over a period of time you will find that your credit score gradually improves.
Back to FAQsWhat alternatives do I have?
There are a few alternative solutions available for people wanting to avoid bankruptcy.
The Formal solution for debt levels below £30,000 is called the Debt Relief Order, or DRO. Read more.
The Formal solution for debt levels above £10,000 is called an Individual Voluntary Arrangement, or IVA. Read more.
And finally, there is the Informal Debt Management Plan, or DMP. Read more.
IVA Vs. Bankruptcy
Being able to determine whether an IVA provides a better solution than Bankruptcy is often extremely difficult. So we have drawn up a comparison of the two solutions, detailing specific areas of general concern for people facing this decision in the hope it may assist with that process. Read more.
Back to FAQsLet us help you
IVAorg CIC are specialists in helping people get to grips with their financial problems. To arrange a private consultation to explore the options you have and to learn the pros and cons of each, simply call 0800 088 7502.
Alternatively, complete this form and one of advisers will call you at your preferred time.
