If you can’t afford to meet your minimum payment towards your debt, bankruptcy is a legal process that reduces or clears monies owed to creditors. This can be voluntary (started by you), or involuntary (started by an individual or organisation that you owe more than £750). A receiver (sometimes known as a "Trustee in Bankruptcy") will assess and sell your non-essential assets, and distribute the proceeds to recoup as much of the debt as possible.
The aim of bankruptcy is to pay as much debt off as possible, and as quickly as possible.
When you declare yourself bankrupt, your assets are taken by an appointed receiver as contribution to paying off all or part of your total debts. Any fundamental domestic item such as clothing, furniture, bedding, or household appliance, along with anything essential for running a business (e.g. vehicles, specialist equipment, tools, clothing) will be exempt from seizure. Only items of real value will be used to pay off your debts.
As a guideline, typical assets that may be used as part of your bankruptcy order include:
Anything that is regarded as a non-essential item of relevant value can and most likely will be considered. Unless you can adequately demonstrate that any particular item if taken would make your everyday or working life harder, and even more costly, then mitigating circumstances may prevail, at the discretion of the receiver. This would largely be the only situation where you can intervene. For more details, see our blog on bankruptcy and assets.
If there is equity in your property (the amount owed on the property is less than the value), then you may be required to sell the property to release the equity as a contribution to your creditors.
You do not have to lose your home however. If a friend or family member agrees to purchase the equity you have in your property, or you owe more than the value (you are in negative equity), then you may be able to keep your home. For more details, see our page on bankruptcy and your home.
Bankruptcy has a big effect on a person’s ability to borrow and secure credit. As the process results in the freezing of accounts, then an individual will not be able to access significant credit until discharged from bankruptcy.
After bankruptcy, it is possible to open new bank and/or building society accounts, though there may be restrictions on accounts set by the lender, if they accept you. Thus, buying a house soon after bankruptcy is unlikely, as even after you have been discharged, many creditors will be reluctant to lend, as it will of course lower your credit rating.
Criteria for creditors differs from lender to lender though, so this is not set in stone. There are ways to improve credit ratings and after six years the bankruptcy will not be listed on credit
reference files. After three years, records of missed or late payments will be removed from those records.
For more information, see our page: Bankruptcy UK & Your Home.
Generally, any car under the value of £1000 may be kept. If you have a vehicle worth over this amount, you will need to provide sufficient proof that the vehicle is essential to your domestic and/ or
professional life. It is important to note, that even if this can be proved, the bankruptcy receiver reserves the right to sell the vehicle to raise funds and to provide you with a cheaper alternative
that suits your basic requirements.
For more details, see our page on bankruptcy and motor vehicles.
Any other assets you may have of significant value could be considered by the receiver for sale, in order to pay as much to your creditors as possible.
Generally speaking, you will be free from bankruptcy within 1 year, although this can vary from case to case. The end of the bankruptcy is called the discharge, and your name should also be removed from the bankruptcy register three months later.
In terms of the law, you are free to try for credit. The chances of obtaining credit can be difficult, and you should also think very carefully before turning to further credit that caused the bankruptcy in the first place. You should make sure that every effort is made to rebuild your credit rating where possible, and make use of budgeting tools and advice to avoid future financial difficulties. By doing this, if credit does become unavoidable, you will have a greater chance of obtaining affordable credit.
As you would expect, going bankrupt will have a significant effect on your credit rating and your ability to get credit in the future.
During the bankruptcy process, numerous restrictions are placed on an individual. For example, if applying for credit of more than £500, you have to declare that you are bankrupt to the potential lender. Naturally this makes obtaining credit very difficult, at least until the bankruptcy is discharged, which is usually a year after the date of the original bankruptcy order.
Even after that 12 months, getting credit will be restricted. The bankruptcy remains on credit history files for a further five years, though debts can be listed as satisfied or settled after discharge. Whilst your rating will be adversely affected during this period, it is still possible to obtain credit.
The cost of becoming bankrupt is £705 in the UK. If you have a low income, £175 of this amount may not be applicable as it relates to a Court fee. For more details, see our page on the bankruptcy process.
This is understandably a common question posed by those considering bankruptcy. For those with partners, financial problems can affect far more than one person.
The first thing to make clear is that a person’s partner is not liable for their debts, and the partner’s assets cannot be used to pay off creditors, nor can a bailiff seize items. The exception may be with joint assets.
However, your partner can still be indirectly involved in proceedings. The official receiver for example could request information about your partner’s financial situation, such as their income. The receiver may do this to see how the household is being run and who pays for what.
In a partnership, debts are not halved between the two parties. Should one half of a couple be made bankrupt, then both are liable for all of the debt. If a house is in joint names then the individual's proceeds from any potential sale of the property forms part of their estate so the home may have to be sold to help pay creditors. Your partner could buy your share. A forced sale to pay off debts can be delayed for up to a year to allow inhabitants the chance to find alternative accommodation.
Unlike an IVA or debt management plan, bankruptcy is a published debt solution. This means that your name will appear in public registers such as the "Individual Insolvency Register" or the London Gazette.
The purpose of this is so that credit reference agencies are guaranteed to obtain the updated information. Other individuals and organisations that may be informed of the bankruptcy are your bank, your mortgage provider or landlord, pension provider or insurance provider.
Any HM Revenue and Customs approved pension thankfully remains outside the remit of a bankruptcy order. One exception would be if it can be drawn within the 12 months before discharge, as any lump sums could be taken as assets. An Exclusions Order could also exclude a non-approved pension from the bankruptcy proceedings, but this is less secure. It’s important to note that lump sums can still be used by the Official Receiver after an individual is discharged from bankruptcy.
A state pension is not part of a bankruptcy estate. For more details, see our page on bankruptcy and pensions.
Scottish insolvency laws are very different to English insolvency laws. In Scotland, bankruptcy is known as sequestration. Whilst at thebankruptcyservice.co.uk we are able to provide this service, for more information please contact us for a no-obligation chat (0800 043 6260) to discuss the differences between English bankruptcy and Scottish sequestration.
In Northern Ireland, the process is much more similar to English bankruptcy, despite there being some differences. As such, the receiver needs to be specialist to that area, so please enquire now to discuss further. For UK variations, you can find further information here.
TheBankruptcyService.co.uk doesn't charge a fee for its bankruptcy service, but receives remuneration from the partners that we work with in order to keep TheBankruptcyService.co.uk operating. Those partners must charge a fee to the customer to likewise cover operational costs, and this amount will vary depending on the solution offered, and the terms of the parner. For details of these terms, please refer to the website of the organisation dealing with your bankruptcy. Upon application with TheBankruptcyService.co.uk, we will forward your information on to one of our specialist debt partners. You will then be contacted, and you will be able to explain your case, and expert advice will be offered in order to ascertain the most appropriate debt solution.