What is Bankruptcy?
This is such an important question for people experiencing serious financial difficulties.
We've all heard of the term 'bankruptcy' and we may even know someone whose been bankrupt, but knowing someone who has been bankrupt isn't enough to fully understand what it is and how it works.
The problem is, insolvency law that defines bankruptcy is complex. It has to be in order to cover all the different scenarios that bankruptcy must deal with.
Each individual insolvency is unique to some degree, unique to the circumstances of the individual concerned, which means every bankruptcy will be unique to some degree too.
So having a clear understanding of how the bankruptcy laws will be applied your personal circumstances will be of great help in determining whether bankruptcy is the best solution for you.
What Is A Bankruptcy Order?
A Bankruptcy Order is an order issued by a County Court, or a High Court, as a result of a petition for bankruptcy by either a creditor or a debtor in order to declare an individual bankrupt.
A Bankruptcy Order sets out the terms of the Bankruptcy, including the length of the bankruptcy, the treatment of assets or any special conditions and, if necessary, the details of any Income Payments Agreement (IPA) to be applied.
Any person who owes more than £750 can be declared or can declare themselves or be declared bankrupt if they are unable to repay their outstanding debts.
The only difference is who pays the costs for the bankruptcy; the end result is the same.
The bankruptcy process
To declare yourself bankrupt you will need to complete an online application form.
There are significant costs involved and bankruptcy costs are in two parts, an adjudicator fee of £130 and a further fee of £550 which is paid to the Official Receiver.
Fees are paid by the applicant. If you are made bankrupt by a creditor, they will pay the fees on your behalf.
The Official Receiver Interview
Having been declared bankrupt you will have an interview with the Official Receiver, an official appointed by the Court to ensure you comply with the Bankruptcy Order imposed upon you.
The Official Receiver will determine the length of your bankruptcy, how your assets will be dealt with and whether you can afford to make repayments to your creditors.
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, so long as they are of modest value.
The Official Receiver will also assess you current financial circumstances and decide whether you can afford to make monthly payments towards your debts.
What does bankruptcy do?
The bankruptcy process allows an appointed representative of the Court take control of your financial circumstances.
It gives that representative the power to seize assets and dispose of them for the benefit of the creditors, whilst establishing whether you have any other financial means by which you could repay your debts.
In exchange for this intervention, you, the debtor, are relieved of the burden of any unsecured debts you may have, with these debts being legally written-off through the bankruptcy process.
Certain debts are, however, unable to be written-off through the bankruptcy process. Court fines, CSA arrears, secured debts and loans to the Student Loan Company, to name but a few.
What about my employment?
Bankruptcy might have an affect on your ability to continue in your occupation, depending on what you do for a living and the position you hold.
Certain professions prohibit bankruptcy as a debt solution and you cannot be a director of a limited company whilst you are bankrupt.
If you are in a partnership, the partnership may be dissolved, however, sole traders can continue to trade.
Employees are not normally affected by a bankruptcy but, if in doubt, you should refer to your contract of employment or consult your Human Resources manager.
How long does bankruptcy last?
For the majority of people bankruptcy lasts for a period of 12 months, although this term can sometimes be reduced.
However, the Court can also lengthen the term of a bankruptcy by imposing a Bankruptcy Restriction Undertaking (BRU) against the bankrupt if the Court considered it necessary. This sanction would normally be implemented if the bankrupt failed to comply with the Official Receiver, or if their debt was accrued through dishonesty, carelessness or gambling.
Refusal to accept a BRU can lead the Court to impose a Bankruptcy Restriction Order (BRO) and failure to comply with this order is a criminal offence.
Publication of bankruptcy
Bankruptcy, as a debt solution, is in the public domain and anybody can gain access to the information about a bankruptcy through the public records held by the Insolvency Service. This is to ensure that any potential creditors are aware of each bankruptcy, which allows them the opportunity to claim against a bankrupt's estate should they have a financial interest in it. Notification of each bankruptcy is also published in the London Gazette.
This means that when you are declared bankrupt your name will be entered on a register at the Insolvency Service. The Insolvency Register holds the records of all active bankruptcies, IVAs and Debt Relief Orders, and is made available to the public through the internet.
It is also a significant resource for the three Credit Reference Agencies (CRAs) who us it use to keep all credit records up to date. Your name and last known address will be on the register, along with details of your bankruptcy and any restrictions you may be under. Details remain on the register for the full duration of the Bankruptcy Order and for a period of up to 3 months after you have been discharged.
When the period of bankruptcy comes to an end, and assuming you have co-operated fully with the Official Receiver, you will be automatically discharged from your bankruptcy. No paperwork is provided to prove the bankruptcy is over but you can ask the Official Receiver for a letter confirming your discharge or, if you prefer, you can pay the court for a "certificate of discharge".
Finally, if you're making payments through an Income Payment Arrangement, or Income Payment Order, you will be required to continue paying your contributions until the arrangement ends.
Bankruptcy is a solution for people in serious debt and there are alternatives. To discover what they are, or to chat to an experienced debt adviser call 0800 088 7502.
Alternatively, complete this form and one of our professional debt advisers will call you at your preferred time.