What is Bankruptcy?
Bankruptcy is a formal insolvency solution where you or a creditor that you owe more than £750 to, can declare that you are unable to pay your debts. It is usually considered as a last resort Insolvency Solution, but can be a fresh start for those who need it.
In Bankruptcy, your assets are sold off to help pay the outstanding debts. You usually can keep personal belongings, contents from your home and tools of your trade provided they are not of a high value.
If you have surplus income every month, you could be asked to contribute payments for up to 3 years. Your assets and income are dealt with by an Insolvency Practitioner or by a governemnt official called the Official Receiver.
Bankruptcy usually lasts for 1 year. After this you are discharged from your bankruptcy and you are free from your debts (with certain exceptions).
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What are the benefits of Bankruptcy?
Debts are written off (with certain exceptions - see disadvantages).
Your creditors can no longer take action against you for debts owing (unless the debt is secured on your home or property).
You can make a fresh start debt free after only a year (with exceptions).
You might not have to sell your home if your partner, spouse, or a relative can buy your share of it's value (after any secured debts have been paid).
What are the disadvantages of Bankruptcy?
Your bankruptcy is entered on a public register and is advertised.
Bankruptcy can affect your employment. If you work under any professional bodies, you could be barred from practising and you cannot act as a company director or be involved in management, unless the court agrees to it.
If you own a business it will most likely have to be closed down.
You cannot trade in any business under any other name unless you inform all persons concerned of the Bankruptcy.
If you petition for your own Bankruptcy, you will be subject to a court fee and deposit. These fees are currently in the region of £700 in England and Wales and £640 in Northern Ireland (subject to change).
You will lose control of your assets.
Your credit rating will be affected.
You cannot obtain credit of £500 or more without disclosing your Bankruptcy.
You may be subject to a Bankruptcy Restrictions Order for anything from 2 to 15 years if you have acted irresponsibly, recklessly or dishonestly.
How do I go Bankrupt in Northern Ireland?
A court makes a Bankruptcy Order only after a Bankruptcy Petition has been presented. There are two ways to present a petition to go Bankrupt. You can apply for Bankruptcy yourself (Voluntary Bankruptcy), or a creditor that you owe more than £750 to can apply for your Bankruptcy (Involuntary Bankruptcy).
A bankruptcy order can still be made even if you refuse to acknowledge or agree to the order. You should therefore try to co-operate fully once the bankruptcy proceedings have begun. If you dispute the creditors' claims you should try and reach a settlement with them before the bankruptcy order is made: trying to do so afterwards is difficult and expensive.
How much will it cost to make myself bankrupt?
Bankruptcy fees in Northern Ireland are slightly lower than the fees for Bankruptcy in England and Wales. There are 3 fees you have to pay to make yourself bankrupt. These are outlined below (for Northern Ireland Only) and are subject to change.
If you are a married couple and you are both applying for bankruptcy, you will each have to pay separate fees. If you were in business as a partnership, each partner will have to pay separate fees, unless all the parties apply for a joint bankruptcy petition under the Insolvent Partnerships Order 1994 (Form 16).
The above fees should be paid in cash, postal orders, or by a building society, bank or solicitor's cheque. Cheques should be made payable to H M Paymaster General. Personal cheques will not be accepted.
Please note : If you decide to enlist the services of a company for help with making your Bankrutpcy application, instead of filling in the forms yourself, the company may charge a fee for this service in addition to the fees stated above.
Where is the Bankruptcy Order made?
In Northern Ireland, Bankruptcy Petitions can only be presented in the High Court in Belfast.
What will happen at Court?
The Court will either hear your petition straight away or arrange a time for the Court to consider it.
If English is not your first language and you need an interpreter, the Court will not be able to help you find one. You will have to do this yourself and pay interpreter's fees.
At the hearing the Court can do one of four things:
As well as a bankruptcy order, the Court may issue a certificate of summary administration - as long as your unsecured debts are less than £20,000 and in the previous five years you have not been bankrupt or made an Individual Voluntary Arrangement with your creditors. If the Court issues this certificate, it will make the administration of your bankruptcy quicker and simpler.
The Official Receiver will then be your Trustee in bankruptcy (see below) and you will automatically be freed from bankruptcy (known as 'discharged') two years from the date of the bankruptcy order. (If a certificate of summary administration is not made, your discharge from bankruptcy would usually be three years from the date of the bankruptcy order.)
Who deals with Bankruptcy cases in Northern Ireland?
The Official Receiver is a civil servant and an officer of the Court. He is responsible for administering bankruptcies and will act as a Trustee of your estate unless a private sector Insolvency Practitioner is appointed.
One of the Official Receiver's main duties is to investigate your financial affairs for the time before and during your bankruptcy.
An Insolvency Practitioner can be appointed Trustee instead of the Official Receiver. They must be licensed and are usually accountants or solicitors. The Insolvency Practitioner is then responsible for the disposing of your assets and making payments to your creditors.
What are the duties of a Bankrupt?
When a bankruptcy order has been made, you must provide the Official Receiver with information relating to your financial affairs such as, a list of your assets (property, pensions, insurance policies etc), amounts of each debt and to which creditor each debt is owed to, within 21 days.
Any assets are then to be handed over to the Official Receiver along with any bank statements and insurance policies relating to your property and financial affairs.
Any assets and income increases obtained during the bankruptcy should be declared to the Trustee.
You must not obtain credit of £250 or more from any person without first disclosing the fact that you are bankrupt.
Any bank or building society accounts must no longer be used.
You must not make any direct payments to your creditors.
You may also have to attend Court to explain why you are in debt. If you do not co-operate, you could be arrested.
What are the effects of Bankruptcy?
Once you have been made bankrupt all assets belonging to you come under the control of the Trustee, including your home.
Where the home is co-owned, the debtor's interest can still be realised, but a right of occupation period of twelve months is allowed for the disposal of the property if a co-owner, family or dependents of the debtor occupy it. At the end of the twelve-month period, the property will almost certainly have to be put up for sale, enforced by a Court order if necessary.
The other main disadvantages of bankruptcy are the constraints forced upon the bankrupt and the stigma of having to declare oneself as a bankrupt for certain transactions.
A bankrupt may not:
A bankrupt may open a new bank or building society account but should disclose the fact that they are bankrupt. The bank or building society may then impose conditions and limitations. Overdraft facilities or chequebooks must not be obtained, as they are likely to be dishonoured. The bankrupt must inform the Trustee of any funds available in the account, which exceed the normal living expenses, in order for the Trustee to distribute among the creditors.
How does Bankruptcy affect your credit rating?
Your bankruptcy will be registered with credit reference agencies and remain on your file for a minimum of six years. After this time you may still have to declare your previous history, particularly when applying for a mortgage.
How long does Bankruptcy last?
A bankrupt may be discharged (freed from obligations under the bankruptcy order) after the one year.
Discharge is not necessarily automatic and can be postponed by the Court. In addition, the discharge may not necessarily free that person from certain liabilities and does not mean that unrealised assets will be safeguarded.
Discharge releases the bankrupt from most of the debts owed at the date of the bankruptcy order. Exceptions include debts arising from fraud, certain crimes and fines. Certain other debts such as damages or personal injury or money owed under family proceedings (such as maintenance) will be released only if the Court agrees.
If you have been declared bankrupt before, within the last 15 years, you will not be automatically discharged. You will only be able to apply to the Court for a discharge 5 years after the date of your current bankruptcy order; even then the Court may refuse or delay discharge.
What are the main changes of the new legislation (Enterprise Act 2002)?
The main changes are as follows:
I have been living abroad but have large debts in the UK. How will this affect my credit rating in the UK and should I file for Bankruptcy?
Any debts that you have in the UK will remain on your credit reference file for six years after the last activity on the account (this could be a repayment). Bankruptcy orders will also be on your file for six years or even longer. Once discharged from bankruptcy you should not have a problem obtaining credit after the six-year period although you may be restricted in the number of mortgage lenders who will consider you. If any transactions have taken place from your current address it is possible that your creditors may try to trace you there.
Should you wish to apply for bankruptcy in the UK then you will have to do this in person at an English or Welsh County Court or The Belfast County Court. This is only possible for the first three years' in which you reside abroad.
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