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Bankruptcy in England
Bankruptcy is a legal process which lasts for 12 months after which a person is discharged from their debts (subject to some exclusions).
In most instances the Debtor will be require to make payments for a further two years. Bankruptcy is often considered as an alternative to an IVA in England. Please note that Bankruptcy in England, though very similar, is distinct from Bankrutpcy in Scotland which is also known as Sequestration.
Involuntary Bankruptcy is when a Debtor who is unable or refuses to repay their debt is declared bankrupt as a result of a formal legal process which results in a court issuing a bankruptcy order. Creditors can apply to have someone declared bankrupt, provided they owe them £750 or more.
Voluntary Bankruptcy is when a Debtor applies in their own right to be declared bankrupt as their debts are greater than their assets. This option is more likely to be exercised if the Debtor either does not qualify for an IVA, or has had their IVA application rejected.
In the event of a Bankruptcy (voluntary or involuntary) the assets belonging to the Debtor are given to the Trustee who is responsible for managing your Bankruptcy (an Insolvency Practitioner or an Official Receiver) who will realise those assets in order to make payments to your Creditors.
There are negative short-term and long-term effects for people who have been declared Bankrupt. For the duration of the Bankruptcy, you are subject to certain restrictions such as being unable to borrow money and being barred from becoming a company director.
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In this guide
How does a Bankruptcy work?
Advantages & Disadvantages
Why choose Carrington Dean for debt advice?
Frequently asked questions about Bankruptcy
How does a Bankruptcy work?
You should firstly consult with a recognised money adviser, who can explain all the options to you. You can use our Debt Calculator which will return indicative minimum payments for respective debt solutions based on your debt level. (We also ask for some contact details so we can provide detailed debt advice as the calculator is only indicative.)
After consulting with a debt advice provider you can choose to apply for Bankruptcy if you are unable to pay your debts or a Creditor to whom you owe £750 or more can apply to have you made bankrupt. The application must be made formally to a court and you will have to pay fees totalling £700 (it may be less if you are on income support).
You will receive an information pack from the court and you may be interviewed (either in person or by phone) by the Official Receiver to check details of your debts, assets and income and the circumstances of your Bankruptcy. If the court rules that you are eligible, a Bankruptcy order will be issued.
Your assets will now be controlled by the person responsible for managing the Bankruptcy – either an Insolvency Practitioner or the Official Receiver. They will take charge of selling assets to repay debts to Creditors. You will be subject to certain restrictions for the duration of the Bankruptcy which is usually 12 months. These include borrowing more than £500 without informing the lender of your bankruptcy and holding company directorships.
At the end of the 12 month period, provided you have complied with the terms of the Bankruptcy order, you will be discharged from Bankruptcy and your debts written off (subject to some exclusions). However, depending on your level of disposable income, you may be required to make payments to Creditors for up to a further two years. Your Bankruptcy will remain on credit files for six years.
Advantages & Disadvantages
- It offers a chance for a new start if you have no prospect of paying your debt otherwise
- You will be discharged from bankruptcy after 12 months and your debts will effectively be written off
- It prevents Creditors from harassing you over unpaid debt
- You will be allowed to retain essential assets and personal possessions
- Bankruptcy is not free, you have to pay £705 in fees
- Bankruptcy will remain on your credit file for 6 years
- It may affect your employment, depending on your profession
- You may have to make payments to Creditors for up to 2 years even after you have been discharged from bankruptcy
- You will be subject to restrictions such as a ban on being a company director.
- Your assets may be sold to pay your debts, and if you are a homeowner equity must be released to pay Creditors.
- You could lose all or part of your pension.
Why choose Carrington Dean for advice?
- Carrington Dean group includes one of the UK’s leading independent debt solutions business. We are experienced in guiding people expertly through the Bankruptcy process.
- We are an ethical and professionally-run business regulated by the Financial Conduct Authority.
- Our friendly team have extensive experience in assisting people from all backgrounds who find themselves in stressful financial situations.
- We have successfully helped more than 10,000 people in the UK to tackle the misery of unaffordable debt.
- Because we are experts in not just Bankruptcy, but the full range of debt solutions, we can help you make an informed choice about the debt solution best suited to your needs. GET STARTED !
Frequently asked questions about Bankruptcy
Yes, if you have failed to comply with the terms of a credit agreement then a Creditor can petition for bankruptcy. If you receive a letter or call informing you that a Creditor intends to do this, you should seek professional advice immediately.
Yes, you can start bankruptcy proceedings on your own accord if you are unable to pay your debts. However you have to petition a court which has to decide whether or not to allow you to enter bankruptcy. Grounds for bankruptcy include factors such as having a County Court Judgement being made against you or an unsuccessful attempt by court bailiffs to seize your assets.
It normally lasts 12 months from the date the court made you bankrupt but the period can be extended if you do not comply with terms of the bankruptcy. Also, depending on your circumstances, you may have to contribute to payments to Creditors for up to a further two years after you are discharged.
There are several banks that will provide a basic bank account service which allows you to deposit and withdraw cash. However you are unlikely be unable to maintain an existing account after sequestration, even if you do not owe money to that particular bank. In some cases, if you have a joint account with a partner and only one of you has been declared bankrupt, the bank may insist on that account being closed, and both of you opening a new account.
If you are given money as a gift during the course of a bankruptcy you must inform the Trustee and you may have to surrender the cash to them. You must inform your advisor of all changes to income, regardless of the source of the income.
People who are declared bankrupt do not automatically lose their home. What will happen to your home depends on several factors such as whether you have any equity in the property (i.e. if your house is worth more than the amount you owe the mortgage lender then you have equity, if it is worth less you have ‘negative equity’). If the house is worth a lot more than you borrowed to purchase it, then you may have to sell the house to release cash for Creditors but there are potentially other ways to realise the value which may not require an outright sale. You should obtain expert advice on your own situation.
Although your assets must be sold to pay your bankruptcy debts, you are usually allowed to keep items you need for work such as tools or a vehicle (depending on the value of the vehicle, you may have to sell it for a cheaper model). You are entitled to keep personal items such as clothing, bedding and furniture. However if you have valuable jewellery, antiques, art or motorbikes etc, these will considered as assets which can be sold.
Bankruptcy has a serious effect on your credit rating as it stays on your credit file for six years. You may need to ensure that records of the main UK credit reference agencies are updated in due course to ensure that you can regain access to credit. It can be difficult to secure a mortgage or other loan in future.
It depends on your job or profession and terms of employment. In many cases you can continue working as normal. However, there are certain employers and professions that place restrictions on the employment of people who are in bankruptcy. These include the legal and accounting professions as well as the police and armed forces and Members of Parliament.
Your name will be included on a register held by the Government Insolvency Service which is publicly available. However only limited details are shown and someone would have to actively search for you by name to find any information. In the past, newspapers published details of bankruptcies, this is a rare occurrence now.
You should talk to your Trustee about your particular pension circumstances as the rules vary according to the kind of pension you have. Your state pension is not considered part of the bankruptcy estate, also if you have a personal pension that has been approved by HM Revenue and Customs, it will not be included as an asset. Even if this is not the case, you may still be able to obtain permission for a personal pension to be excluded. However if your pension is included as part of the bankruptcy estate, the Official Receiver or Trustee is able to claim all or part of it even after you have been discharged from bankruptcy.
There are several restrictions including the fact that you cannot borrow more than £500 without telling the lender you are bankrupt. You cannot be a director of a company or set up or manage a company without a court’s permission not can you run a business under another name without telling people you trade with that you are bankrupt.
No, not all debt is written off. There are some exclusions including: debt arising from fraud; child support and alimony; student loans; court fines and personal injury fines.