Some facts about bankruptcy

Written by Payplan Ryan on 15 April 2013

Bankruptcy is not an easy subject to discuss and that can make it difficult to understand. At Payplan we are often asked about bankruptcy and, although we do not specifically deal with it on behalf of our clients, we want to highlight what it entails.Some of the key questions we are asked are:

What is bankruptcy?

What are the possible impacts/outcomes of being bankrupt?

Who is involved?

How long does it last?

I’m thinking of bankruptcy what about my partner?

 What is bankruptcy?

Bankruptcy is a type of insolvency, whereby a debtor cannot pay their debts as they fall due. In the United Kingdom (UK) the term only applies to individuals; administration or liquidation is the term applied to companies or organisations. It can be self-petitioned or can be imposed by the creditor/s directly (this being a large cost to the creditor in both money and time it is not very common). Bankruptcy does have a cost involved; expect to pay about £700 to start bankruptcy proceedings. In certain circumstances court fees can be exempt, therefore reducing the cost. Be aware of companies who can offer to arrange bankruptcy as there may be fees involved, which would increase the cost.

What are the possible impacts/outcomes of being bankrupt?

Firstly, it is important to seek advice before making the decision to go down the bankruptcy route. Bankruptcy might not be the best option and is certainly not the only option that can be taken to tackle debt. The truth is that bankruptcy differs dependent on personal circumstances. The Citizens Advice Bureau can give advice and may have a trained advisor to discuss your circumstances face-to-face. Once the bankruptcy order has been completed, you can usually make a fresh start. This can be within 12 months and again is dependent on your circumstances. The debts you owe are usually written off, but student loan debts are exempt from bankruptcy proceedings. With the appointment of an Official Receiver (the court appointed person in charge of your bankruptcy) you will no longer have to deal with your creditors directly. Creditors normally stop other types of court action too.

With bankruptcy, details are entered on to the Insolvency Register a public record that can be accessed on the internet. Only in a few circumstances, like self-employment, do details of bankruptcy get published in local newspapers.

Remember to seek advice about bankruptcy before you make the decision, there are many other impacts according to your own situation e.g. homeowner status.

Who is involved?

Usually the debtor will instigate the bankruptcy proceedings, this means completing a Debtor’s Bankruptcy Petition and a Statement of Affairs – containing disclosure of assets and personal information including details of current bank/build society accounts. Once this has been approved by the courts (it can be rejected and an alternative debt solution suggested) an Official Receiver or a licensed Insolvency Practitioner is appointed to act as the trustee. Your existing creditors will be contacted by the trustee. During bankruptcy you cannot apply for any further credit without declaring you are an un-discharged bankrupt to the creditor. If you were to omit any creditor in error this is still included in the bankruptcy.

How long does it last?

Dependent on the level of co-operation with the Official Receiver this could affect the time you are considered to be bankrupt. Discharge will happen within a year with full co-operation. Sometimes the trustee will feel the bankrupt has enough disposable income to pay some into an Income Payment Arrangement (IPA) for 36 months.

I’m thinking of bankruptcy what about my partner?

Do you have a partner or someone else whom you have a joint debt with? Are you concerned what could happen to them? As long as you do not have any joint debts your partner or family will not be affected. However, if you do have joint debts your creditors can pursue the other party or parties under what is known as Joint & Several liability.

In conclusion;

Payplan can advise if bankruptcy or a Debt Relief Order (DRO) is the most appropriate solution; however we do not specifically manage the bankruptcy as a debt solution in the same way that we would an Individual Voluntary Arrangement (IVA) or Debt Management Plan (DMP).

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This article was checked and deemed to be correct as at the above publication date, but please be aware that some things may have changed between then and now. So please don't rely on any of this information as a statement of fact, especially if the article was published some time ago.

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