What is the Bankruptcy process?
The Bankruptcy process explained
Bankruptcy is one of the options for clearing your personal debt and moving on with a fresh start. Often when you hear the term “going bust”, this sometimes results in declaring bankruptcy. A Bankruptcy Order would cover your unsecured debts, but the below debts are excluded and you will have to continue to pay these:
magistrates court fines
any payments a court has ordered you to make under a confiscation order, for example, for drug trafficking
maintenance payments and child support payments, including any lump sum orders and costs that have arisen from family proceedings, although you may be able to ask the court to order that you don't have to pay this debt
student loans from the Student Loans Company
social fund loans
How do I enter into Bankruptcy?
You can apply to make yourself bankrupt if you can’t afford to pay back your debts.
To apply for bankruptcy, you must pay a fee of £680 and complete the online application at www.gov.uk/apply-for-bankruptcy.
If you do not apply for your own bankruptcy, one of your creditors (who you owe money to) can ask a court to make you bankrupt, even if you do not consent to this, this is referred to as involuntary bankruptcy.
They can only do this if you owe them £5,000 or more.
Advantages of Bankruptcy
Whilst bankruptcy has some serious consequences, there are some advantages to the process.
It will alleviate the pressure as you will not have to deal with your creditors
You will be allowed to keep some of your personal items, such as everyday household items ( including TV, electronics, etc) and the tools that you need to continue to work, including a reasonable vehicle to travel to and from work
You are allowed to retain a amount of income to support your reasonable living expenses
If you have a large income, and are required to make payments to your bankruptcy, this will only be for 3 years.
You do not need to repay any debts that are covered by the bankruptcy
Disadvantages of bankruptcy
It is more difficult to obtain credit and will stay on your credit record for 6 years.
You are unable to act as a director of a limited company throughout the period of your bankruptcy (usually 12 months)
If you own your home, that has equity, you may have to sell your home
If you own any high value, non-essential, items, these may need to be sold
Being in Bankruptcy will affect your job if your role involves financial matters or certain regulated professions, if you are an insolvency practitioner or if you are licensed to carry out a role in the gambling industry.
Bankruptcy Process
The bankruptcy process lasts for 12 months, in which certain restrictions apply, such as, you are unable to be a director of a limited company, you are unable to obtain further debt without first notifying the lender of your bankruptcy.
These restrictions will end after 12 months of your bankruptcy, known as your discharge from bankruptcy. Please note that it is possible for your discharge from bankruptcy to be extended further than 12 months if you have not complied with the terms of the bankruptcy order.
Once your Bankruptcy has been discharged, you will no longer be liable for the debts included at the time of your bankruptcy, and will not need to make any repayments whatsoever to these debts.
Help with finding the right solution
If you are struggling with your personal debt and would like to explore what your options are, contact our team who will be happy to answer your questions and try to find a path that's right for you.