A Guide To Bankruptcy In The UK

guide to bankruptcy picBankruptcy is a way to deal with debts that you cannot afford to pay.

It is typically viewed as a last resort, partly because it might involve using assets like the home and possessions to pay creditors.

Bankruptcy is something that must be applied for, there are fees involved, and the covered individual is subject to certain restrictions.

Once a bankruptcy concludes, the covered debts are discharged so they will not need to be repaid.

This debt management solution might have a severe and lasting impact on credit so consult us before applying for it.

Our debt experts may propose other solutions that allow you to tackle debt without as much harm to your credit score or other important areas of your life.

Bankruptcy Basics

This page applies only to bankruptcy in England and Wales. If you live in Scotland you should read about “sequestration” instead.

Only a court can declare a person bankrupt. Individuals, sole traders, and partners can apply to be made bankrupt but the procedures vary for a partnership or company.

A creditor can petition the court to make a person bankrupt if it is owed at least £750.

Once the court issues a bankruptcy order, the receiving party is considered bankrupt. Being made bankrupt may put you at risk of losing your business or home depending upon your circumstances. No payments are made to covered creditors during the bankruptcy period, but you might be asked to contribute towards your debts from income, assets or windfalls.

How Bankruptcy Works

After a bankruptcy order is issued, you’ll have turned over any financial interest in property and some types of valuable assets to the trustee appointed to manage the bankruptcy. This individual is either an authorized debt specialist or a Civil Servant referred to as an Official Receiver.

Appointing a trustee does not occur automatically so the Official Receiver initially fills this role and may also become the trustee depending upon your circumstances.
You might be required to attend an interview to provide details regarding your assets, debts, and financial status.

If your affairs are straightforward this meeting might be held over the telephone. The Official Receiver uses the information provided to protect assets for creditor benefit, to assess whether you can afford to contribute towards your debts from income, and to assess your conduct prior to bankruptcy. If there is significant evidence of deliberate carelessness, dishonesty, or criminal behaviour on your part, the restrictions imposed during bankruptcy may be extended.

If you have bank accounts, these may well be frozen by the bank. It may not be possible to open new accounts with a major High Street bank while the bankruptcy order is in place. However, Barclays currently offer an account to undischarged bankrupts and other types of “paid-for” accounts are available to bankrupts.

Creditors are informed of the bankruptcy and must make a formal claim to the trustee regarding money they are due. However, they are not permitted to request payment from you directly.

The trustee may make payments to approved creditors by disposing of or selling your relevant assets and property (many household and other types of goods are excluded from this). If an Income Payments Agreement or Order is used, any spare income may be used to help pay creditors for as long as three years. The bankruptcy period usually lasts for 12 months but it may end earlier or be delayed due to lack of cooperation or failure to adhere to the restrictions.

Restrictions And Responsibilities During Bankruptcy

While in bankruptcy, you will be subject to certain restrictions. For example, bank accounts and credit cards must be disclosed to the Official Receiver. Payments should normally continue for all debts excluded from the bankruptcy order. Several restrictions remain in place following bankruptcy discharge.

For example, assets which might be used to pay debts and costs are not necessarily immediately returned. If an Income Payments Agreement or Order is used, any spare income may be used to help pay creditors for as long as three years.
Bankruptcy has the potential to affect some careers depending upon your profession and contract of employment.

If you run a business, your trustee may require its closure and the dismissal of all employees. If the business remains open, you must complete relevant VAT and other tax returns. Employees may issue a claim to the trustee for any holiday pay and wages unpaid through their National Insurance Fund claims.

Some employment contracts, including those for Financial Conduct Authority-controlled roles, charity trustees, and solicitors, might not permit a job incumbent to be bankrupt.

Though you may begin trading again, you must adhere to several restrictions during bankruptcy:

  • Cannot act as company director
  • Court permission is required to develop, promote, or manage a company
  • Must inform those you deal with of the bankruptcy if you manage a business
  • Must inform a lender of the bankruptcy if you want to borrow more than £500
  • Must re-register for VAT

How Bankruptcy Affects Your Home

One of the most common questions customers have for us is how bankruptcy will affect their living situation. The truth is that you may need to sell or leave your home to help pay debts included in the bankruptcy order. This is more likely if there is considerable equity in your home or if the monthly costs are deemed to be excessive for your area or for your needs.

Control of assets including owned property is passed to the trustee during bankruptcy. The trustee may receive the beneficial interest in the property, which is your share of the property value after secured debts are repaid. If you are the sole owner, the trustee may also receive the property title listing the legal owner.

The transfers are recorded in the public Land Registry and remain there until the property is no longer included in the bankruptcy estate. If selling the home is the only way for the trustee to pay creditors, this may be done. The mortgage and any secured loans will be repaid first and the bankruptcy estate will then receive the surplus.

You cannot sell the property yourself without permission or make a claim on any money raised during sale by the trustee for your share of such an asset. Even if you are only renting, bankruptcy might possibly affect your housing situation if your tenancy contains a personal insolvency clause.

Positives And Negatives Of Bankruptcy

Despite being a last resort, bankruptcy has some positive features:

  • Typically only lasts for 12 months until discharge
  • No direct payments made on covered debts while bankruptcy order is in place
  • Covered debts are discharged when bankruptcy period ends
  • Can keep certain assets include household items and material and most equipment required for vocation, business, or employment (often including a vehicle)
  • Pension usually not included in bankruptcy
  • Self-employed individuals may begin trading again, though possibly subject to restrictions

The negative aspects of bankruptcy include:

  • Must turn over certain assets of value, such as a financial interest in property
  • Must submit credit cards and bank accounts information to the trustee
  • Does not cover all types of debt (student loans, child maintenance payments, and court fines are usually excluded)
  • May have to close business in some circumstances
  • Can affect working situation for some types of employee and professionals
  • Affects ability to get credit, even after the bankruptcy has been discharged
  • Listed in Individual Insolvency Register
  • Bank, mortgage company, landlord, insurance providers, and pension providers might be informed

Applying For Bankruptcy

Bankruptcy processes in Northern Ireland and Scotland are different from those in England and Wales. The steps involved in applying for bankruptcy in England and Wales are as follows:

  1. Complete a Debtor’s Bankruptcy Petition and Statement of Affairs, Debtor’s Position as part of the bankruptcy petition. Bankruptcy reason must be included on the Bankruptcy Petition. Assets, debts, and creditor contact information must be listed on the Statement of Affairs.
  2. Find the bankruptcy court located nearest where you trade or work (wherever you have been located for the longest within the previous six months) which covers you geographically. Contact the court to schedule a date and time to submit your documents and pay the fees.
  3. Provide the original and two copies of the forms to the court. Keep a copy of each form for your records.
  4. Pay bankruptcy fees of £175 for court costs and £525 for bankruptcy management costs (at the time of writing). If you receive income support, the court fee may not apply. Check with the Court in advance what types of payment will be acceptable.
  5. The court will review the bankruptcy petition and deem whether it needs further information, whether it should reject the petition, reject it and order a bankruptcy alternative, or most commonly issue the bankruptcy order that you have applied for. If the petition is rejected, you will not be refunded the fees but if an alternative is recommended, these fees may be applied to any fees that apply.

Bankruptcy In A Nutshell

  • Must apply through a bankruptcy court which covers the area in which you are based
  • £700 fee
  • No payment of covered debts during bankruptcy period
  • Can lose home, business, and assets in some circumstances
  • May affect employment for some
  • Your existing bank accounts usually frozen
  • Published on Personal Insolvency Register
  • Debts typically discharged after 12 months if not repaid through asset and property sales
  • Credit reporting agencies maintain bankruptcy records for six years

If you cannot repay your existing debts, you may be considering bankruptcy. We recommend that you contact us first so we can review your financial situation and determine whether there are alternatives. Debt management is a complex topic but Jubilee Debt Management experts understand the nuances.

We will consider your level and type of debt and provide you with debt management options in a no-pressure way that allows you to remain in control of the situation.

 

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