Bankruptcy
If you live in England or Wales, declaring bankruptcy is a way for you to deal with unmanageable debts. Bankruptcy is a formal, legal procedure where you apply to write off your debts.
How much debt do you have?
How it works
Before being declared bankrupt there is an upfront cost payable of £680. This is payable in instalments although your application will not be processed until the full fee is paid.
You must submit an application online via gov.uk/apply-for-bankruptcy. You will be required to include information about your income, expenditure, debts and assets. Your application will be reviewed by an adjudicator, and you will be notified if the bankruptcy order has been granted. If successful, the Official Receiver (an officer of court who manages your bankruptcy) will be appointed and will contact you to advise on the next steps required, which could include you having to complete a questionnaire or attend an interview.
If you have any assets which can be sold, you may be requested by the Official Receiver to do so in order to pay your creditors. They may also request for you to make contributory payments (this could be for a period of up to 3 years). Your previous financial dealings will be assessed, and this will include the disposal of any significant assets in previous years. If it is determined that your previous actions may have contributed to the bankruptcy, the Official Receiver can put restrictions in place that can last from 2 to 15 years.
In most cases you will be automatically discharged from Bankruptcy after 12 months.
Advantages
You could be debt free after 12 months
You are automatically discharged after 12 months. There may be occasions where a Bankruptcy lasts longer than 12 months, if this is necessary it will be explained to you by your Trustee.
Legal protection
Once approved, creditors can no longer proceed with legal action against you.
No longer dealing with your creditors
The Official Receiver will deal with your creditors on your behalf so you no longer have to.
Available to everyone
Unlike a DRO there is no strict qualifying criteria that you need to meet before you can apply.
Interest and charges
Interest and charges are frozen once the bankruptcy application has been approved.
Disadvantages
Lose control of assets
If you own a home or possessions of significant value, these items could be sold to help repay your debts. You will be allowed to keep everyday household items and tools required for your employment.
There is a fee to pay before you apply
There is an application fee of £680, although this can be paid in instalments. The fee needs to be paid in full before your application can be submitted. There are additional fees that are involved if you have any assets that are sold as part of the bankruptcy.
Payments from your income
You could be asked to make payments towards your debts for a period of up to 3 years.
It will affect your credit score
Bankruptcy will be recorded and have a negative impact on your credit file for a period of 6 years.
Added to the Individual Insolvency Register
Your personal details will be recorded on the Insolvency Register which is a public record.
Effect on employment
Bankruptcy may impact your employment; therefore, you should always check the terms of your employment contract before making an application. You are also unable to be a company director unless you have permission from the court.