The bankruptcy process explained
You can apply for bankruptcy yourself, or your creditors are able to apply if you owe them more than £5,000 in unsecured debts in England and Wales, or £500 in Northern Ireland. If your Individual Voluntary Arrangement (IVA) fails, your Insolvency Practitioner can also apply for your bankruptcy.
An upfront fee of £680 is required to file for bankruptcy, however help could be available by way of a grant if you are unable to afford this. This can also be paid in instalments.
Residents of England and Wales must apply for bankruptcy online, which you can do here. Northern Ireland residents apply through the courts; the forms for this are available from the High Court in Belfast or from the Insolvency Service.
If a creditor or a supervisor applies for your bankruptcy, you will receive a copy of the petition. You have the option to stop the bankruptcy but must guarantee to the court that the debt will be paid. At this point, some people apply for an IVA instead, as this will stop the bankruptcy process.
Once approved for bankruptcy, you will stop dealing with your creditors and making payments, and they will be unable to take any legal action against you. A Trustee will be appointed, which will be an Official Receiver or Insolvency Practitioner.
They will discuss your finances and assets with you to investigate how you can make any contributions to your debt. You must co-operate with the Trustee, giving them any information that they need. They will deal with your non-essential assets to clear as much of your debt as possible.
If your Trustee deems that you have leftover income each month and could afford regular payments into the bankruptcy, they may also apply for an Income Payment Order (IPO) to take regular payments from you, which can be done without your permission. It is rare that you would be required to make payments if you rely on state benefits.
How your assets are considered in bankruptcy
Any asset which is considered non-essential can be sold by your trustee. These can include:
- Your home – this will depend on the value of your home and whether the property is worth more than the outstanding mortgage and any loans secured against it. You won’t be made homeless, of course, but if you live in a home that’s worth £500,000 for example, you may be expected to downsize your house to repay your debts.
- Your vehicle – if any vehicle you own is worth more than £1,000 it is likely to be sold and the money raised used to pay off your debt. If you need a vehicle for your work or business, you may be permitted to retain some of the funds to buy a cheaper vehicle.
Any item you need to meet your basic domestic needs is classified as ‘essential’ and will not be considered in your bankruptcy. These can include:
- White goods, such as fridges and washing machines
- Vehicles which are required for business use
- Vehicles held on finance may be repossessed by finance company or the payment might not be allowed by the trustee
However, if any of these items are deemed to be of excess value they may be sold, and a proportion of the funds will be given to you to purchase a cheaper replacement.
Bankruptcy usually lasts for 12 months, after which time any remaining debts are written off. If you made an income payment arrangement with your Trustee, however, you will be required to continue to make these payments. Your credit report will show your bankruptcy for six years from when it’s approved.
For more information about the bankrupty process, visit the government website.
For expert advice on alternative debt solutions that may be available to you, call PayPlan FREE on 0808 278 3071. We are open from 8am to 8pm Monday to Friday, and 9am to 3pm on Saturday. Alternatively, complete our enquiry form and we will be in touch as soon as possible.