Bankruptcy questions answered

What is Bankruptcy?

Bankruptcy is a debt solution that enables people to clear debt when they cannot afford to repay the companies they owe money to.

Bankruptcy works by freeing the person from debts included in a Bankruptcy Order but it should be considered as a last resort due to the repercussions associated to going bankrupt as you could lose your home and assets.

Your credit rating will be adversely affected in the long term – making it difficult for you to secure credit in the future.

Your employment could also be affected – especially if you work within the finance sector or in a role that requires you to handle money. You will not be able to hold certain public offices.

What will Bankruptcy do for me?

Bankruptcy will:

• Free you from the pressures of debt
• Stop creditors chasing for payment or debt settlements. It will also help you to avoid CCJ and bailiff action
• Help you get your finances back on track

Will I still have to make payments to the companies included in my Bankruptcy Order?

You may have to make regular contributions from your salary to your creditors; however this depends on your personal circumstances. The amount that is paid to creditors is determined by the amount that you can reasonably afford after your normal living expenses have been deducted from your income. This is called an Income Payments Order (IPO), and it could remain in force for three years from the date of Bankruptcy if you are required to make contributions. Your appointed Official Receiver will be able to provide more information.

Will I lose my home if I declare Bankruptcy?

All assets of value could come under the control of the Official Receiver when you are declared bankrupt. If you are a homeowner, this could include your property. If you share this property with a partner and /or children, you could be given 12 months to find suitable accommodation. Your property could be sold to help repay the creditors you owe money to. If you own the property with someone else they, or another relative, may be able to make an offer to buy your interest in the property.

If you are a tenant and rent a property, then you will not be at risk of losing your home through Bankruptcy. It is essential that you continue to make rental payments on time to your landlord / housing agency.

What assets can I keep when I’m declared bankrupt?

You will be allowed to keep furniture and basic household items, plus clothing, bedding and children’s toys. You will be allowed to keep a vehicle providing it is low value and needed for essential use.

You will also be able to keep tools and equipment if needed for employment / business use.

How will going bankrupt affect me?

• You will lose control of your assets, including your home if you are a homeowner
• Any assets you acquire during your Bankruptcy will become the property of the Official Receiver
• Your credit rating will be affected and you will find it difficult to obtain credit
• You can’t hold certain public offices
• Your employment could be affected – especially if you work within the finance sector. Your HR department will be able to provide more information
• You can only conduct business using the name under which you were made bankrupt
• You can’t form, manage, act as a company director or promote a company without the Court’s permission
• You may open a new bank or building society account but you should disclose the fact you are bankrupt
• You cannot obtain credit over £500 without first disclosing the fact that you are bankrupt
• Your Bankruptcy will be registered with credit reference agencies and this will usually stay on your credit file for 6 years following Bankruptcy
• You may still have to declare that you were bankrupt if you apply for a mortgage after the six year period

If I don’t want to go bankrupt are their alternative solutions to help clear my debts?

If you don’t want to go bankrupt you should speak to our sister company, Baines & Ernst, about alternative debt solutions. These include:

Debt Management Plans (DMP): A DMP helps you to repay debts at a rate you can afford. Baines & Ernst distribute payments to creditors – so you no longer have to deal with the pressure of managing repayments. Debts will be cleared on successful completion.

Individual Voluntary Arrangements (IVA): An IVA is a legally binding agreement that enables you to repay your debts at a rate you can afford. With an IVA, creditors included in the arrangement cannot chase for outstanding payments, interest and charges are frozen and any debts that exist at the end of the term will be written off. IVAs typically last for a period of 5 years and are subject to creditor agreement, which is not always guaranteed.

Debt Relief Orders (DRO): If you have a very low disposable income after essential living costs and are struggling to repay your debts, a Debt Relief Order could be the right solution for you. A DRO could free you from debt in 12 months but restrictions apply and qualifying criteria is very specific. Baines & Ernst provide the service for free, but a £90 fee needs to be paid directly to the Insolvency Service for the DRO to proceed.

Can I make someone else bankrupt?

You can petition for someone else to be made bankrupt but you will need to instruct a solicitor and this could cost you upwards of £1,500.

When will I be discharged from Bankruptcy?

Bankruptcy normally lasts for a period of 12 months, after this time you will be freed (discharged) from the debts included in the Bankruptcy Order. Your credit rating will be affected for six years following Bankruptcy and you will find it difficult to secure credit in the future.

Please note that if you have to make contributions from your income towards repaying your creditors, this will last for a period of 3 years, therefore you will have to continue to make contributions 2 years after you have been discharged.

Can I still have a bank account if I’ve been made bankrupt?

Yes you can still have a bank or building society account if you’ve been made bankrupt. You will have to declare that you have been made bankrupt however, as they may want to apply certain restrictions to your account. For example, you may not be entitled to a cheque book or credit card.

How much does it cost to go bankrupt?

 
If you are married or in a partnership and you are both filing for Bankruptcy, you will have to pay separate fees unless all parties apply for a joint Bankruptcy Petition under the Insolvency Partnerships Order 1994 (Form 16).

Baker Evans charge an administration fee for providing the Bankruptcy Support Service.

If you can’t find the answer to your question here, please contact us on 0800 294 6432 or complete the enquiry form and a member of our team will get back to you.