Bankruptcy

What exactly is Bankruptcy

Bankruptcy is a court order which can be applied for either by yourself or a creditor.

It is one of the ways of clearing your debts if you do not have the funds to do by paying them off. When you are declared bankrupt, your excess income (above what you need for essentials) and assets are used to pay back your creditors. Creditors can be credit cards, banks, store cards and other lenders. When you come to the end of your bankruptcy period and are discharged from bankruptcy, debts will usually have been cancelled.

How do you become Bankrupt

There are two ways to be declared bankrupt. Either you can apply yourself to become bankrupt or a creditor can apply to have you declared bankrupt.

If you decide to apply to be declared bankrupt you need to download a debtor’s petition from the Insolvency Service website. Once you have filled this in take it to your county court. A small fee is payable but can be waived if you meet certain criteria. There is also a £345 fee for the Official Receiver.

A creditor can issue a creditor’s petition if you owe them an unsecured debt of more than £750. You should cooperate, even if you do not fully agree with the terms of the creditor’s petition. Try your best to reach a settlement before the petition is heard otherwise it can be difficult to change and cause problem later.

How will being bankrupt affect you?

Once you are declared bankrupt you give up all your assets baring essential items such as bedding and items needed for work. If you own a house it may be sold to release the equity in it for your creditors. Your income will be investigated and a judgement will be made about how much you have to pay your creditors. You may have to explain to the court how you became in so much debt you had to be declared bankrupt. If you are self employed you may have to shut.

Your pension and any life assurance policy may also be affected.

After Bankruptcy.

You will normally be discharged from bankruptcy after 12 month. If an agreement was signed for how much you will pay your creditors this will usually last 36 months. Sometimes large assets such as houses will still need to be dealt with after this time.
Your credit rating will still be affected for some time.

Alternatives to Bankruptcy

Bankruptcy should be used as a last resort.
Other arrangements such as informal arrangements, administration orders or individual voluntary arrangements should be investigated before turning to bankruptcy.