What is bankruptcy?
Bankruptcy is a court order that you can apply for if you’re in overwhelming debt. If you go bankrupt the court will take charge of your assets and use them to take care of your creditors and your debt.
Bankruptcy brings penalties and long-term damage to your credit rating, so it is usually a last resort. In some cases, those you owe money to may apply to make you bankrupt.
This guide will answer many of your bankruptcy questions and help you to understand whether it’s an appropriate option for you.
Advantages of bankruptcy
There are some advantages to going bankrupt:
- Your creditors will be prevented from contacting you or taking court action against you.
- You’ll have enough money to live on and you’ll be allowed to keep certain things.
- The money you owe can usually be written off.
- You can make a fresh start when your bankruptcy order is over.
Drawbacks of bankruptcy
Declaring bankruptcy is a big decision, and it has some disadvantages:
- You will have to pay up to £510 to go bankrupt, not including solicitors’ fees.
- Your bank accounts and credit cards will be closed.
- Your bankruptcy will appear in the press and on the internet.
- You may have to sell your home, and any valuable items that you own.
- Any business you own will be closed and your employees will be dismissed. In some professions you may not be allowed to carry on working.
- Bankruptcy can affect your immigration status.
- You’ll lose any assets you gain during the term of your bankruptcy. This includes inheritances and growth in the value of your home.
- Court fines and student loans won’t be written off after bankruptcy.
- After bankruptcy, you’ll find it difficult to get credit.
Before you decide to approach the court, you’ll need to fully understand the consequences of filing for bankruptcy. It’s best to seek out an expert who can give you advice on bankruptcy and answer any questions you have.
- You need to complete two forms: a bankruptcy petition and a statement of affairs. These are both available from your local court or online.
- You will need to list all your creditors and your building society and bank details, as well as details of any valuables you own.
- You will need to pay a non-refundable fee of £360. You may also need to pay a fee of £150 – though the court might reduce this or say that you don’t have to pay it.
- You need to go to your local court and swear an affidavit to say you’ve told the truth on the forms, after which you may need to attend a court hearing.
- The courts may either reject your application or make a bankruptcy order. In some cases the court might recommend a better solution to your debt problem.
- All your accounts will then be frozen. Your assets will be sold to repay your debts. The court representative (the Official Receiver) will notify your creditors and take care of the administration of your debts.
- If you live in your home with your partner or children, the Official Receiver may delay the sale of your home for a year. There are also options for your partner, spouse, relative or friend to buy the ‘beneficial interest’ in your home (the interest in the proceeds from the sale of the property).
Life after bankruptcy
Many people feel ashamed about going bankrupt, and it can be an anxious and stressful time. However, it is important to remember that going bankrupt is not the end of the world – even though it may feel like it at the time – because you are taking control of your debts and making a move towards getting your life back on track. Find out more about coping with debt emotionally.
When your bankruptcy’s over you’ll be free from the debts you took into bankruptcy and able to make a fresh start. While you may be able to get credit, you’ll probably find it difficult as you’ll appear as ‘high risk’ to your creditors. It may also be difficult to get a mortgage.
Alternatives to bankruptcy
Bankruptcy may not suit your particular circumstances so it’s important to get as much information on bankruptcy as you can. Organisations like the Citizen’s Advice Bureau, CCCS or National Debtline can give you impartial advice.