How Do I Declare Bankruptcy?

• Cons of bankruptcy
• Pros of bankruptcy
• How can I declare bankruptcy?
• What happens when you get made bankrupt?
• Is there an alternative?
• Ways to avoid bankruptcy

Cons of bankruptcy

Apart from losing all of yours assets of any value, declaring bankruptcy means you can’t:

• get credit for more than £500 without first telling the lender you’re bankrupt
• use bank or building society accounts or credit cards
• practice as a chartered accountant or lawyer
• be a Justice of the Peace (JP)
• become a member of Parliament
• join as a member of your local council
• act as a company director
• form, manage or promote a limited company without the permission of the court
• trade in any business under any other name unless you inform all the people affected by each transaction of your bankruptcy

You might also go through public questioning in court.

Bankruptcy is not a quick fix or “short sharp shock”. A record of your bankruptcy will show on your credit file for the next six years. That’ll make getting loans, bank accounts or mortgages difficult and expensive.

THe mark on your credit file affects more than your ability to get a credit card or loan. You won’t be able to get a mortgage for at least six years, renting a home could be difficult, and things like car finance and mobile phone contracts are unlikely to be awarded. You’ll have to live precisely within your cash means for several years.

Pros of bankruptcy

There are a few advantages:

• You can get relative peace of mind, freed of overwhelming debts to make a fresh start.
• In most circumstances, you’ll be automatically freed from bankruptcy (be “discharged”) after one year (although it stays on your credit report for six years)
• An independent person – the official receiver – has a good look into your affairs so creditors can find out now exactly how bad things look.

How can I declare bankruptcy?

Individuals are usually made bankrupt in one of three ways:

• You can petition for your own bankruptcy. If you can’t pay your bills when they fall due, you can petition for your bankruptcy. You’ll do it at the High Court if you live or carry on business in London, or in a local county court that deals with bankruptcy.
• By your creditor/s. A creditor to whom you owe more than £5000 can petition for your bankruptcy. To do it, however, they need to show that you don’t appear able to pay the debt, or have no reasonable prospect of doing so. Citizens Advice Bureau (CAB) will help you learn how to deal with a bankruptcy petition.
• By the supervisor or anyone bound by an Individual Voluntary Arrangement (“IVA” – more on them here).

Remember:

• You can be made bankrupt even if you refuse to acknowledge the process is underway or refuse to agree to it.
• The best course of action is to fully co-operate once bankruptcy proceedings have begun. This will ensure the process is as painless as it can be and that you have all the information you need about what’s going on. If you need support, the Citizen’s Advice Bureau is there to help.

Once you petition for bankruptcy:

• The court will appoint an official receiver who needs to find out as much as possible about what you own and what you owe.
• In most cases, the official receiver will control all your finances during the application process and, if you’re made bankrupt, after that too.
• The upside is that you’re then protected from your creditors who can only pursue you for money through the receiver.
• Bear in mind the receiver’s job is also to look for any signs of criminal activity which could’ve led to your bankruptcy.
• In a situation where you owe more than you own, the only things you can keep are some basic household items and any tools you need to work.
• If you own your home, the official receiver can sell it off to go towards paying your debts. In case you have a mortgage and can’t meet the payments, the lender may repossess your home. If you’re in danger of that happening, you might want to read our piece on home repossession.
• If you have any income over and above what’s necessary to live on, you’ll have to hand that over for the next year. In fact, this could possibly last for up to three years after your discharge from bankruptcy if an “Income Payments Order” is made against you.
• You might have to pay part of your debts each month. That will be based on what you can afford. Read more about budgeting to learn how to cope with those payments.
• For most people, bankruptcy lasts for about a year. You can get out of it if you pay all your debts and all the fees that go with being made bankrupt. Alternatively, you’ll need to prove that the bankruptcy order against you shouldn’t have been made; for instance, because you had already paid the debt in question.
• But, if there’s evidence you’ve been dishonest, reckless or blameworthy, you’ll be slapped with a Bankruptcy Restriction Order. It has many of the same restrictions of bankruptcy and can last for up to 15 years.

What happens when you declare bankruptcy?

A creditor to whom you owe more than £5000 needs to show that you do not appear able to pay the debt or have no reasonable prospect of doing so to petition for your bankruptcy. A common way for a creditor to prove this is to send you a “statutory demand”. It’s a letter with a formal demand for the sum you owe. If you don’t comply within 21 days of receiving it, the court will view that you appear unable to pay the debt.