MoneyMagpie

Mar 05

How Do I Declare Bankruptcy?

Former Eastenders star, Martine McCutcheon, has just been declared bankrupt because she owed the tax man more than she could afford to pay. Bankruptcy is a legal process by which most of your assets of any value are sold off to pay your creditors what you owe them. This just shows that bankruptcy can happen to anyone, so find out what happens when you’re declared bankrupt.
Most of the time, it is started by creditors who see no better way to get their money back. People in debt sometimes choose to start the bankruptcy process themselves.

However, despite the rapid rise in popularity of going bankrupt, it’s not something that should be taken lightly. Bankruptcy can turn your life upside down. In most cases it’s like trying to get rid of a mouse in your house by dynamiting the place – it works, but it will take just about everything you own with it.

 

Cons of bankruptcy

  • bankruptcyYou will probably lose all of your assets of any value including your home and car.
  • You can’t get credit for more than £500 without first telling the lender you’re bankrupt.
  • You can’t use bank or building society accounts or credit cards.
  • You can’t practice as a chartered accountant or lawyer.
  • You can’t be a Justice of the Peace (JP).
  • You can’t be a member of Parliament.
  • You can’t be a member of your local council.
  • You can’t act as a company director.
  • You can’t form, manage or promote a limited company without the permission of the court.
  • You can’t trade in any business under any other name unless you inform all the people affected by each transaction of your bankruptcy.
  • You might be publicly questioned in court.

And – most importantly, bankruptcy is not the “quick fix” or “short sharp shock” it is often made out to be. A record of your bankruptcy is kept on your credit file for the next six years, which will make getting loans, bank accounts or mortgages difficult and expensive.

 

Pros of bankruptcy

bankruptcyThere are only a few advantages:

  • You can get relative peace of mind, freed of overwhelming debts to make a fresh start.
  • In most circumstances, you will be automatically freed from bankruptcy (what is known as being “discharged”) – after one year.
  • 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?

moneymagpie_petition-quill-write-graphicIndividuals 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 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 £750 (or two or more who are owed between them over £750) can petition for your bankruptcy if they can show that you do not appear able to pay the debt, or have no reasonable prospect of doing so. This link 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), usually just your creditors, can also apply to make you bankrupt.

Remember:

  • You can even be made bankrupt if you refuse to acknowledge the process is underway or refuse to agree to it.
  • The best thing to do is co-operate fully once bankruptcy proceedings have begun – ensuring the process is as painless as it can be and that you are well-informed about what is going on. If you need support, the Citizen’s Advice Bureau (CAB) 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 then, if you are made bankrupt, after that too.
  • bankruptcyThe upside is that you are then protected from your creditors, who can only pursue you for money through the receiver.
  • But, be warned, the receiver’s job is also to look for any signs of criminal activity, which could have led to your bankruptcy.
  • If you owe more than you own, the only things you’ll be allowed to keep are some basic household items and any tools you need in order to work.
  • If you own your home, the official receiver can sell it off to go towards paying your debts. If you have a mortgage and can’t meet the payments, the lender may repossess your home. If you are endanger of that happening, please 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 too for the next year (and possibly 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, but that will be based on what you can afford. You might like to read more about budgeting to learn about how to cope with these payments.
  • Most people are made bankrupt 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 or if you prove that the bankruptcy order against you shouldn’t have been made (e.g. because you had already paid the debt in question).
  • But, if you are found to have been dishonest, reckless or blameworthy, you will be slapped with a Bankruptcy Restriction Order, which has many of the same restrictions of bankruptcy, and can last for up to 15 years.
For more detailed information about the official bankruptcy process, including the cost, try the Government’s Insolvency Service.

What happens when you declare bankruptcy?

A creditor to whom you owe more than £750 (or two or more who are owed between them more than £750) 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. bankruptcyA common way for a creditor to show this is to send you what is called a “statutory demand”. This is a letter that makes a formal demand for the sum you owe. Failure to pay that sum as requested in the statutory demand within three weeks of receiving the demand means that the court will view that you appear unable to pay the debt.

If you honestly believe that the petitioning creditor is completely wrong and that you do not owe them £750 or more you can resist the petition and should take legal advice if you can afford it. If you cannot afford legal advice, try a Citizen’s Advice Bureau. Above all, do not be afraid to go to court personally. The courts will generally be on your side and will take the time to explain the process to you and what you should do if you want to resist the petition.
If you agree that you do owe £750 or more you should try to reach a settlement with the petitioning creditor before the bankruptcy petition is due to be heard in court. Trying to sort it out after you’ve been made bankrupt is difficult and expensive. If you have more than one creditor, you should consider proposing an IVA.

Is there an alternative?

  • Try writing to the people who you owe money to see if you can reach a compromise. Include a timetable of when you’ll repay them.
  • An Individual Voluntary Arrangement is a more formal way of doing the same thing, plus you get the help of an insolvency professional to make sure you do what you say you will. If you want to find a proper IVA practitioner (as opposed to some of the dodgy companies that have sprung up recently) contact R3 for their list.

 

Ways to avoid going bankrupt

  • Live within your means.
  • Budget and check over your spending regularly. Do you really need that 14th pair of black sling-backs or those golf clubs?
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WHAT DO YOU THINK?

3 thoughts on How Do I Declare Bankruptcy?

  1. Hello Mike,
    Following Jasmine’s request, we are happy to comment on your situation.
    If you reckon your current predicament is likely to be a temporary setback, it may be worth negotiating reduced or nominal, goodwill offers of payment with your creditors for the time being, until your financial circumstances improve. There is advice on how to approach this and standard letters you can use in the Credit Action ‘Dealing with Debt’ Guide, which is downloadable from our website (www.creditaction.org.uk)
    However, if you feel there is little likelihood of you being able to clear your debts within the foreseeable future, bankruptcy may indeed be the way forward but it is essential for anyone contemplating this course of action to fully understand the downside as well as the plus points. There is further information about bankruptcy on the CCCS website (www.cccs.co.uk) which you may find useful.
    Bankruptcy should always be a last resort and we would urge anyone who is considering this option to first obtain professional advice from a free-of-charge provider who can examine all available options open to you, and suggest the best course of action. We recommend you contact the Consumer Credit Counselling Service (CCCS), a registered charity which offers free debt advice to anyone experiencing financial difficulties; they also operate a specialist bankruptcy advisory service. Their Helpline number is 0800-138-1111.
    All the best to you.




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  2. Hello Mike. You have had a tough time recently. I do hope it gets better soon.

    To me it looks like bankruptcy may be the best option, but I will ask someone from one of the proper, free debt advice agencies to contact you and talk through your situation with you. Hang in there!




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  3. Hi Iwonder if you can advise me .
    My daughter was married about 4 years ago and as the father of the bride It was quite expensive .At that time I had a good job and salary.Also I had credit cards and a loan in operationand I started to have problems in making my payments so I entered into an IVA with Payplan and everything was going great and I was making regular payments to them.Then last year I collapsed at work and was rushed into hospital and spent 6 days in there from there was off sick for 9 months with re-ocurrring health problems.so Payplan cancelled the IVA and I took out a Debt Management Plan with them and again I was making regular payments to them.Now my employer has told me that due to Financial Difficulties with the Company my hours and my salary are to be severly reduced I have re-calculated my Incomming and outgoings and now my figures show a minus of £100 per month.In this case I am now condidering petitioning for my own bankrupsy could you please advise.

    Thank you

    Regards

    Mike




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