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Bankruptcy

Bankruptcy is usually considered a last resort but can be an effective solution for those in severe financial difficulty as all debts included are written off.

We provide IVAs by our licensed insolvency practitioner regulated by the Insolvency Practitioners Association. We provide information about all debt solutions but we do not provide advice as we are not regulated by the Financial Conduct Authority.

What's Bankruptcy

If repaying your debt has become an unrealistic way forward, Bankruptcy can be a way of resolving the situation. Bankruptcy takes the form of a court order and is accessed via an application known as a petition.

The process can be undertaken by an individual debtor or by a creditor who is owed more than five thousand pounds. An Official Receiver completes an assessment of your current circumstances; the order is fulfilled by a combination of asset realisation and regular contribution, the latter in the form of an Income payments order where the debtor demonstrates a disposable income is available.

The debtor is discharged as a bankrupt after one year with an income payments order, where appropriate, lasting a total of three years. Bankruptcy details are held on the Insolvency Register for fifteen months after your discharge* and your Credit report for a period of 6 years.

*Unless there is a Bankruptcy restriction undertaking in place.

Advantages and Disadvantages of Bankruptcy

There are many things to bear in mind when considering debt solutions. We’ve outlined some points that are important know with Bankruptcy:

Advantages

  • It is a way of getting your debts written off.
  • Your creditors will no longer be allowed to continue contacting you directly.
  • The Bankruptcy itself lasts one year, after which you will be debt-free.
  • You may be able to keep your house if there’s no equity in it and your car if it is worth less than £1,000.
  • You’ll still be allowed a reasonable amount of money to live off.

Disadvantages

  • You will likely lose your home if there is available equity in it and any other valuable assets.
  • There is still a £680 fee to pay to apply for Bankruptcy, and your application will not be considered until this is paid.
  • You could be at risk of losing your job and may struggle to get work in the future.
  • Your details will be published on the public insolvency register.
  • Your credit rating will be negatively affected for six years following the Bankruptcy.

What Will Bankruptcy Cost Me?

Like some other debt solutions, fees are involved when opting for bankruptcy.

The total cost is £680, which covers two aspects:

  • £130 – adjudicator fee
  • £550 deposit (if your application is rejected, you get this money back)

This fee must be paid in full before your application can be considered, but you can pay in instalments if needed.

If your Bankruptcy is undischarged and you have a disposable income after essential living costs have been made, an income payments order is issued; this can last up to three years.

Bankruptcy Vs. Other Solutions

Bankruptcy Vs. IVA

Both of these solutions may enable you to write off large sums of debt. However, important things to consider are:

  • If you have disposable income, then an IVA involves you paying an affordable amount towards a proportion of your debts for 5 years. In Bankruptcy, an income payments order can be issued which can last up to 3 years.
  • Your home and assets are protected with an IVA, whereas these may be sold if you opt for Bankruptcy.

Here’s some further information if you are choosing between an IVA or Bankruptcy

Bankruptcy Vs. Debt Management Plan

These are many differences between these two solutions, and the main ones are:

  • Bankruptcy is an official Court Order, whereas a DMP is an informal agreement.
  • Most debts are covered by Bankruptcy, whereas only non-priority debts are included in a DMP.
  • Bankruptcy is an option when you have very little capability of paying off your debts, whereas a DMP requires you to make monthly contributions.

Here’s some further information to consider if you are looking at Bankruptcy or a Debt Management Plan.

Bankruptcy Vs. Debt Relief Order

These are two very similar solutions, but they do serve different purposes. The main differences are:

  • A Debt Relief Order is designed for non-homeowners with few assets (value not exceeding £2,000).
  • The fees for Bankruptcy are higher (£680), whereas a DRO costs £90.
  • There is no cap on the debt level of those applying for Bankruptcy. A DRO requires a debt level of no more than £30,000.

Here’s some further information to consider if you are looking into Bankruptcy or a Debt Relief Order.

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Is Bankruptcy right for me?

If you are looking for the best debt solutions, it is crucial that you consider all options before making a decision.

We’d suggest you research all possible solutions, as well as seek debt advice from specialists to make sure that you are making the right decision for you.

Whilst Bankruptcy seems like a quick fix to getting rid of your debts, it does come with its downsides and you must know the risks beforehand.

However, Bankruptcy may be suitable if your debts are greater than £30,000 and you really have no spare income to go towards your debts via other solutions (IVA / DMPs).

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We can carry out a suitability assessment, and if you qualify for an IVA we can help put together an application with you. There’ll be no obligation and we’ll be on hand to answer any questions you may have along the way.

What are the steps in Bankruptcy?

1

Speak with a financial advisor

We’d suggest searching for a company who deal with Bankruptcy, if this is a solution you would like to pursue. Avoid companies charging fees for Bankruptcy advice.

2

Online application

If you qualify for Bankruptcy, you will complete an online application form or a ‘Petition’ in which you will fill in to appeal.

This Petition will then be sent over to the Insolvency Service for review.

3

The Insolvency Service

If your application is accepted by the Insolvency Service, then the order will be made and your original lender will be notified that you have declared Bankruptcy.

This is when your repayments will stop, and your lender is not able to contact you until the bankruptcy has ceased.

4

12 month review

When your Bankruptcy is coming to an end, your financial situation will be reviewed and if it has not improved and you are still not in a position to pay your debt within a reasonable time then the money that you owe, including the Bankruptcy will be eliminated.

Money Advice - leading IVA specialists Don't just take our word for it

Bankruptcy FAQ

Most debts will be included in your Bankruptcy and ultimately written off. Some of the main ones include:

  • Credit Cards
  • Utility Bill Arrears
  • Benefit Overpayments
  • Catalogue and Store Cards

You must be aware of what debts will not be included in Bankruptcy, as you will still be required to keep up repayments towards these for duration. If not, you may face even further financial issues.

Debts that will not be written off by Bankruptcy include:

  • Mortgage repayments
  • Student Loans
  • Court Fines
  • Child Maintenance
  • TV License Arrears
  • Any debts you have acquired fraudulently

Anybody could be made bankrupt.

No, only your most expensive assets will be taken to be sold. However you can keep the essential items you require for everyday living.

Your assets are taken in order to be sold. This money pays for the bankruptcy proceedings and then the rest of the money goes towards your creditors to pay off money from your debts.

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*To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.

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