What is Bankruptcy?
Bankruptcy is one way of dealing with debts you cannot pay. It is the time-honoured remedy for individual insolvency. 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.
Anyone can go bankrupt, including individual members of a partnership. There are different insolvency procedures for dealing with companies and for partnerships themselves. For further details on options available to companies please see our business site.
The Insolvency Service is an Executive Agency sponsored by the Department for Business, Energy and Industrial Strategy and has produced the following very informative leaflets which may be obtained directly from them or on the government website:
- A Guide to Bankruptcy⤴
- Dealing With Debt – How to Petition for Your Own Bankruptcy⤴
- What Will Happen to my Home?⤴
If you have disposable income, the Trustee in Bankruptcy may require you to pay monthly contributions to him for a three year period.
If you own a property, the Trustee in Bankruptcy has 3 years to deal with realising the equity in it. He must realise (or sell) your share of any equity to raise money to pay your creditors. This will be done either by:
- Selling it, or
- Applying for an order for sale or possession, or
- Applying for a charging order, or
- Entering into a compromise with you.
Your Trustee in Bankruptcy cannot provide legal or financial advice to you. If you have a property it is therefore important that you seek your own independent advice.
On the making of the Bankruptcy Order, apart from a small number of exceptions, Creditors can no longer take action against you.
If you have disposable income you will only have to pay for 3 years and, probably, less each month than if you entered into an IVA. Means Tested State Benefits and Child Benefit will be left out of account in determining whether payments are to be made.
You will be generally discharged from the bankruptcy in not more than 1 year unless discharge is suspended.
As an Officer of the Court, the Trustee has an overriding duty to act in good faith towards all parties, including the Bankrupt i.e the Trustee cannot disregard the Bankrupts legal rights, simply to improve the position of the creditors.
As a Bankrupt you cannot be employed as a Company Director, nor obtain credit over £500 without telling the creditor of your status.
For misconduct some or all of the restrictions can be extended beyond discharge by way of Bankruptcy Restriction Order.
Ownership of all your assets will pass to your Trustee in Bankruptcy, whose main job will be to realise them for the benefit of your creditors. This will include your share of any equity in your home. Whilst your spouse is likely to have rights of occupation which are good against the Trustee, this protection will tend to last for only 1 year.
The term “Assets” is quite wide. It can include, for example, the rights of a bankrupt to sue for a debt owed to him. Also, the Trustee has the power to apply to Court to overturn prior transactions, subject to various time limits and conditions. Prior Divorce settlements for example can, potentially, come under the scrutiny of the Trustee in Bankruptcy.
What fees will I have to pay for in Bankruptcy?
Assuming you present your own petition, the current cost is £680, comprising Court Fees of £130 (this can be waived if you are on benefit) and Official Receivers deposit of £550. The Official Receiver levies a charge of £1,990 in each case for his administration which will only be paid if monies (in the form of monthly contributions or asset realisations) come into the Estate. If you have significant assets, you may have an outside Trustee appointed who will levy charges (to be agreed by your creditors) and further fees will be payable to the DBIS effectively for Banking Services. The quantum of these charges will depend upon the amount of money paid into the bankruptcy.
Will Bankruptcy work for me?
The law relating to Bankruptcy is complex, and issues that apply to you will depend entirely on your own personal circumstances. We cannot possibly hope to deal with all aspects of this area of the law on our website. If you need further information on this topic please feel free to contact us.
Try our instant calculator to get an understanding of your other options. We would urge you to speak to us so we can assess your circumstances properly. Our expert advice is free – let us help you.