What is bankruptcy?
Bankruptcy is an option that is often considered by those who cannot pay their debts and cannot see any other way forward. Available to those living in England, Wales and Northern Ireland, this solution is one that is always advised to be the last resort for those struggling with debt due to the serious implications that come with it.
When applied for, this option will get all your debts written off, but at the hefty price of giving up all your assets. They will be taken over by an Official receiver, who will also take over your finances for a year, after which you will be discharged. If it is deemed that you can afford to, you may also need to make payments during this time.
In most cases, people will apply for this solution themselves. But in other cases, it’s one of the companies you owe money to that will petition for you to be made bankrupt. This is usually done if you owe them more than £5,000.
Bankruptcy advantages and disadvantages
If you’re thinking about going bankrupt, you’ll need to think about all its aspects and the implications it could have on your day-to-day life. Here we shine a light on the advantages and disadvantages of bankruptcy.
- It only lasts for 12 months, meaning you can start over after this time
- Pretty much all of your debts will be written off, allowing you to essentially be debt-free
- Your debts are dealt with by an Official Receiver on your behalf
- Lenders won’t be able to take any action against you
- You may be able to keep some things that are considered ‘exempt items’ (these are usually things that are necessary to your everyday living)
- You will lose things of high value such as your house or car
- Depending on your job, your employment may be affected
- Your credit rating will be severely affected, and it will show on your credit report for six years
- It will be recorded on a public register
- You won’t be able to manage a business without telling those you work with that you are bankrupt
- Obtaining credit above £500 is not possible without telling the lender that you’re bankrupt
- There are certain debts that cannot be included such as student loans or court fines
How much will bankruptcy cost me?
Fees for going bankrupt in the UK will differ depending on where you live. For those who live in England or Wales, you will need to pay a total of £680 in fees – which is split into £550 for the Official Receiver and £130 for the adjudicator.
If you live in Northern Ireland, then the total fees payable is £669, which is split into a £525 deposit, £144 court fee and a £7 solicitor’s fee.
How much debt do you have to be in to declare bankruptcy?
There isn’t a minimum or maximum amount of debt needed to be able to declare yourself bankrupt. However, if a lender is making the application, then you must owe at least £5,000.
Bankruptcy is best for those whose debt level is higher than the value of things they own.
How long does bankruptcy take?
After submitting your application, the adjudicator will make a decision within 28 days. If they need more information regarding any of the details you have sent, they will then be given another 14 days.
Once you have been declared bankrupt, it will take 12 months to be discharged, and it will remain on your credit file for six years.
Does bankruptcy affect my credit rating?
When you are declared bankrupt, it will be noted on your credit report, where it will stay for a total of six years. This will, unfortunately, have a negative impact on your credit score.
This is because it will show to future lenders that you have struggled to pay back money that you owed in the past. As such, getting any new credit once you have been discharged will be very difficult, and you may be charged higher interest rates or use specialist lenders.
Can I keep my car and house if I file bankruptcy?
Your car and home are considered to be assets, which means in most cases they will be taken and sold as part of your bankruptcy. However, it can be possible to keep your car in some instances if your Trustee protects it or it is considered to be exempt.
It’s also possible to keep your home if you have family or children living with you, the house is in negative equity or someone is willing to buy your share. For those that rent their homes, it’s unlikely you will lose your home as you do not own it.
A journey through bankruptcy
It’s important to be aware of the bankruptcy process before making any decision about your financial future.
Before you do anything, it’s important to make sure that bankruptcy is the right solution to help you. It will have a big impact on not only your finances but your life as well, so it’s best to do your research before making a decision.
There’s plenty of information out there to give you the answers, but it can also be an idea to talk through your situation with a financial advisor. Getting advice from an expert can help you get a better understanding of the support available to you.
If you decide bankruptcy is the route you want to go down, you will need to fill out an application form. This can be found on the government website, which allows you to take your time to do this, save it and go back to it if you need to.
You’ll need to pay the fees at this point – which are non-refundable unless you decide to cancel your application. These can be paid online either in full or in instalments via debit/credit card.
This can also be paid in cash if you wish, but it will need to be in full. You can find out what bank to use when filling out your paperwork.
Now that you have filled in the forms and paid the fees, it’s time to submit your application.
It’s important that you check all the information you have provided are correct before you submit this. If there are any wrong or missing details on your paperwork, this is a criminal offence, meaning you could be fined or arrested.
There might be a delay between your bankruptcy being granted and your assets being seized, but the banks may freeze your accounts in this time. As such, it’s a good idea to try and leave yourself as much money as you need to get by until everything has been processed.
Once your application has been submitted, it will be passed to an adjudicator. They will then have 28 days to consider your application and make the decision to either approve or reject your bankruptcy.
In some cases, they may need to get some more information from you; at which point they will contact you for this. If this happens, they are then allowed a further 14 days to make their decision.
Should the adjudicator decide to reject your bankruptcy, you do have the right to ask them to review this. If the decision still stands, you can appeal to the court to challenge this by submitting an N161 form.
It will also likely be suggested to you at this point that you open a new bank account for any income or benefits to be paid into unless agreed by the bank that you can continue to use an existing account. You may find opening a new account harder because of your bankruptcy, but it should be possible for you to open a basic account.
Life with bankruptcy
Once the order has been made, then you have officially been declared bankrupt. At this stage, your assets will be seized, and your accounts will be frozen.
The Official Receiver will contact you within two weeks of the order to arrange a telephone interview to discuss the details of your bankruptcy. They will then manage your bankruptcy; contacting your lenders and dealing with them on your behalf.
You will be discharged from your bankruptcy after a year, as long as you follow the rules set by the Official Receiver. However, if it was agreed for you to make payments due to some spare income, you may need to continue to make these after being discharged.