What is bankruptcy?Bankruptcy is an insolvency solution; it clears all of your debts using your non-essential assets.
By declaring yourself bankrupt, you are stating that you are unable to pay off your outstanding debts. You will be passing overall responsibility for your debt repayments to a trustee – this person will either be an Official Receiver or an Insolvency Practitioner.
What is the process for going bankrupt?You can apply for bankruptcy yourself or your creditors may have already applied on your behalf. If you are completing an Individual Voluntary Arrangement (IVA) your Insolvency Practitioner can also apply for your bankruptcy.
To begin the process, you will need £680 as an upfront fee. If you don’t think you can afford this, help could be available if you are eligible for a grant and you will need to apply for bankruptcy online.
If your bankruptcy is approved, you will stop making repayments to your creditors and dealing with your creditors directly, they will also be unable to take any legal action against you. The Trustee will then deal with your assets to clear some of your debts.
Bankruptcy normally lasts for 12 months and any outstanding debts are written off. Bankruptcy will show on your credit report for six years from when it’s approved. If you have a surplus income available these funds could be taken and paid into the bankruptcy estate, this is called an Income Payment Order (IPO); this can be done with or without the consent of the person who has applied for bankruptcy.
If you live in Scotland, bear in mind that the solution is different and is known as sequestration, not bankruptcy.
What debts can bankruptcy be used for?Most debts can be included in bankruptcy including:
- Payday loans
- Credit cards
- Store cards
- Unsecured bank loans.
What is a ‘non-essential asset’ in bankruptcy?Your property and some of the possessions you own are considered to be non-essential assets, these can include:
- Your home – your property may have to be sold to pay back your creditors. But this will depend on the value of your home and whether the property is worth more than the mortgage and any secured loans.
- Your vehicle – it could be a motorbike, car or van, but your vehicle will be treated as an asset once you apply for bankruptcy. If it is worth over £1,000 it is likely to be sold. If you need a vehicle for your work or business, you may be allowed to retain some of the funds to buy a cheaper vehicle.
What isn’t considered to be an asset in bankruptcy?Anything you need to meet your basic domestic needs isn’t considered an asset, including:
- White goods such as fridges and washing machines
- Vehicles required for business use can also be exempt from assets.
However, if any of these items are deemed to be of excess value, then they may be sold with you being allowed to retain some of the funds to purchase a cheaper replacement.
Will my friends and family know about my bankruptcy?When you go bankrupt, it will be publicly listed in a special London financial paper (called The Gazette) and on the insolvency register while the process takes place.
But, people will only find these listings if they go looking for them, and so it’s usually only creditors that will see you have been bankrupt, not your family or friends.
It can also restrict you in the future if you want to run a business or work in finance. Some employers will ask if you are bankrupt as it is becoming more common now, but it’s a good idea to check your contract just in case it could affect your current employment.
Now it’s time to consider whether bankruptcy is actually the right option for you. There are a variety of alternative debt solutions to choose from including Individual Voluntary Arrangements (IVA), Debt Management Plans (DMP) and Debt Relief Orders (DRO).
Get in touch with our team here at PayPlan today for free advice on how to tackle your debts and get back to truly living your life again.