What is bankruptcy?
Bankruptcy is one way of dealing with debts you cannot pay. Becoming bankrupt is a very difficult decision and it should only be taken as a last resort.
Before considering Bankruptcy ~ please ensure you have completed a Personal Financial Statement - See Personal Financial Statement
The Bankruptcy Proceedings:
- free you from overwhelming debts so you can make a fresh start, subject to some restrictions, and make sure your assets are shared out fairly among your creditors
- Once you are made bankrupt you have a duty to provide information to the official receiver and the trustee, and attend their office as and when required.
What will happen to me?
- Anyone can go bankrupt. You can either have a petition made against you for bankruptcy or you can apply to declare yourself bankrupt. Before deciding whether to go bankrupt or not, make sure you have considered the alternatives. Bankruptcy may not be your only option.
- Bankruptcy is only one way of dealing with your debts. The advantage of bankruptcy is that you can make a fresh start with your finances, however you need to be aware of the implications of going bankrupt and the cost to yourself.
- You will have to give up any possessions of value and any interest in your home. If you run a business it will become necessary to close that business and any employees you have will need to be dismissed.
- As bankruptcy should normally be regarded as a last resort, you should speak to someone about any alternatives that may be more suitable for your circumstances. there are alternatives to bankruptcy check this website for other options
Bankruptcy - the facts
- Bankruptcy usually lasts for 12 months.
- At the end of the bankruptcy period, most debts are ‘discharged’ (cancelled) but there are restrictions on obtaining credit and working in certain professions.
- An Official Receiver is appointed to protect your assets and investigate the cause of your bankruptcy.
- The equivalent to bankruptcy in Scotland is sequestration
How will bankruptcy affect me?
- If you are declared bankrupt, you are no longer liable for any outstanding debts documented in the bankruptcy proceedings. This can give you peace of mind and alleviate stress.
- Your assets will be shared out between creditors and you can make a "fresh start". However, it doesn't come without implications. Read on.
What are the disadvantages of bankruptcy?
If a Bankruptcy Restriction Order is granted:
- The Official Receiver can sell any of your assets: this includes your family home, your car and any of your household effects (if they are deemed to be of excessive value).
- You will be obliged to declare you are an undischarged bankrupt if you apply for credit in excess of £500.
- You are excluded from occupations and professions, such as the Police Force, Armed Forces, Local Council and Government Offices. Many employers carry out background searches - this might mean that promotion prospects are affected.
- You will be unable to act as the director of a company.
- You cannot take any part in the promotion, formation or management of a limited company without the permission of the court.
- You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
- There may be restrictions on you practising as an Accountant/Solicitor.
- You cannot become a Member of Parliament.
- You cannot act as a Justice of the Peace (JP) or Governor of a School.
- You cannot become a member of the Local Authority.
The bankruptcy order remains on your credit reference file for six years.
Any member of your family, or even your employer, could be publicly examined in court if the Official Receiver believes this will aid the investigation
Your name will appear in the local newspaper under the bankruptcy notices section.
The information is also displayed in the Individual Insolvency Register (accessible on the Insolvency Service website) until three months after you are discharged.
Some items aren't treated as assets for this purpose:
equipment you need for your work (eg, tools or vehicles)
household items needed by you and your family (eg, clothing, bedding and furniture)
If you have a regular and disposable income you'll be asked to make monthly payments for three years towards your debts based on what the Official Receiver thinks is affordable.
If your circumstances change, you'll need to tell the Official Receiver, so they can review these arrangements.
Alternatives to Bankruptcy
If you are in serious debt and contemplating bankruptcy, there are other alternatives that can avoid the severe consequences of bankruptcy:
Debt Management Plans