Factsheet Bankruptcy
What is bankruptcy?
Bankruptcy is a way of dealing with debts that you cannot pay. Whilst you are bankrupt any assets that you have might be used to pay off your debts. After a period of time (usually one year) all of your outstanding debts are written off and you can make a fresh start. The effects of going bankrupt are the same whether you file your own petition or are made bankrupt by your creditors. Many of the bankruptcy rules have changed from April 2004 under the Enterprise Act. This fact sheet mainly outlines the new rules.
Back to top Phone us for advice 0808 808 4000
How to go bankrupt
Filling in your own bankruptcy petition
If you wish to make yourself bankrupt you can obtain a form from your local county court offices. From 6 April 2009 it costs £360 deposit plus £150 as a court fee, payable in cash when you submit your form to the court.
You can now fill in your bankruptcy petition and the statement of affairs online. You can complete the forms in stages and save the information for later. You then save your details online and print the forms off to hand in to the court in the usual way. The online forms service is provided by the Insolvency Service. www.insolvency.gov.uk
- Information
-
If you are on a low income or certain benefits you may not have to pay the court fee. See the section on fees at the end of this fact sheet.
Only the larger county courts deal with bankruptcy petitions so you may not be able to take your petition to your local court. If you live in central London you may have to take it to the High Court but the procedure is the same. There will then be a hearing in front of the district judge, which is often on the same day. The judge decides whether it is appropriate to make the order.
If the order is made you will then have an appointment to see the official receiver who deals with your bankruptcy, sometimes this will take place over the phone.
They will want to go through a long questionnaire with you to look at all your personal and financial details, such as your National Insurance number and pension policy details, income, outgoings and assets.
A creditor making you bankrupt
A creditor can make you bankrupt if you owe £750 or more to that creditor and you have not been able to agree how to repay the debt. Creditors can club together to make you bankrupt but this is rarely done. You can also be made bankrupt if your individual voluntary arrangement (IVA) fails.
Before presenting a bankruptcy petition a creditor must send you a ‘statutory demand’. A statutory demand is a pre-court form that requires you to either:
- pay the demanded amount;
- offer to secure the debt against any property you own (create a voluntary charge);
- offer to pay the debt in a way that is satisfactory to the creditors e.g. by instalments.
Statutory demands can be hand delivered or posted. Some creditors use them as a bluff to try to get you to pay the debt quickly, for example by borrowing elsewhere, but the creditor may not actually apply to make you bankrupt. This is because it does not cost very much for a creditor to send you a statutory demand but the creditor would have to pay large up-front fees to make you bankrupt.
Twenty-one days after a statutory demand is served, the creditor can apply for a bankruptcy order through the county court. However, you can apply to have the statutory demand ‘set aside’ in certain circumstances - for example if your debt is below £750 or there is a dispute about the money owed.
- Information
-
If you have been sent a statutory demand you should check if you can set this aside. Phone us for advice.
- Factsheet
-
We have a fact sheet on ‘Statutory demands’, which may be of assistance to you. Phone us for a copy.
Back to top Phone us for advice 0808 808 4000
Do I have assets?
Once you are bankrupt the official receiver, or appointed trustee, may wish to sell any assets you have.
- Information
-
Certain goods are not treated as assets. These are things such as clothing, bedding, furniture and household equipment for basic domestic needs.
Items necessary for you to carry on your employment such as tools, books or vehicles can also be excluded. If you have valuable household items such as antiques or expensive electrical equipment then these could be sold in order to raise money. You car might be sold if it is valuable but it can be exempt if it is necessary for your employment. You may have to buy a cheaper car instead.
If the official receiver decides you have assets then they will usually be sold as soon as possible.
If you are discharged from bankruptcy before any assets are dealt with they will not belong to you on discharge. Your assets will continue to belong to or ‘vest’ in the official receiver until they are dealt with.
- Information
-
The only asset treated differently is the house where you live. See the section on ‘Property and your home’.
Back to top Phone us for advice 0808 808 4000
Bankruptcy and hire purchase agreements
There may be a clause in the hire purchase agreement that allows the hire purchase company to terminate the agreement if you become bankrupt. In this event, you will have to return the item.
If you wish to keep the item, it is possible for the hire purchase company not to cancel the agreement and for the trustee to allow you to continue to make payments. Phone us for advice.
Back to top Phone us for advice 0808 808 4000
Pensions
Bankruptcy before 29 May 2000
If you went bankrupt before 29 May 2000 you need to be very careful if you have a personal pension. The whole of your future pension could be taken as an asset. This means that you would not get any future lump sum or weekly payments from the pension.
Bankruptcy after 29 May 2000
The law has been changed, and if you went bankrupt after 29 May 2000 then personal and occupational pensions should be unaffected by bankruptcy. You will be able to keep your pension fund except in rare cases where you have paid huge amounts into your pension to try to stop creditors taking your savings. Phone us for advice.
Back to top Phone us for advice 0808 808 4000
Property and your home
- If you own property then this might be sold depending on whether it has any equity (value) in it. If your partner and children live there then the sale can be delayed for 12 months to give them time to find somewhere else to live.
- Once you have gone bankrupt your interest in your home is transferred to the official receiver or trustee. This enables them to sell the home.
- If you are the sole owner then the whole of the value of the property is transferred to the official receiver or trustee.
- With jointly owned property the official receiver is usually only entitled to the bankrupt person's share of the equity. This is called your ‘beneficial interest’.
- Depending on your circumstances, you may be considered to have a beneficial interest even if you are not named on the mortgage. This is a complex area so phone us for advice.
- It may be possible for the joint owner or family and friends to make an offer to the official receiver to buy out your share of the equity. This is particularly helpful if there is little or no equity.
- Remember
-
It is very important that your beneficial interest in your home is bought out as soon as possible or the official receiver may be able to sell the house, even if you have been discharged from bankruptcy.
- If someone is willing to buy your beneficial interest in the home they should contact the official receiver or the trustee who is handling your bankruptcy. The Insolvency Service runs a low-cost conveyancing scheme to organise the transfer of your beneficial interest to someone else.
- There are various fees to pay to cover the cost of this. You will also have to agree with the official receiver how much your beneficial interest is worth before this can go ahead. If there is negative equity or no equity in the property then the value of the beneficial interest can be set at a minimal amount of £1.
- Information
-
For details of the low-cost conveyancing scheme there is a leaflet called ‘What will happen to my home?’ available from the Insolvency Service or phone us for advice.
- If you cannot save your home through someone buying out the official receiver's interest the property is likely to be sold.
- If your home has very little equity in it (up to a set level of £1,000), then the court will not be able to order a sale or put a charging order on your property. They still have up to three years to see if your house has risen in value and is worth selling. Try to come to an agreement with the official receiver over your beneficial interest as soon as you can to avoid this happening.
- If you have a mortgage or secured loan on the property the monthly payments still need to be maintained to stop your lender taking possession action. Phone us for advice.
New rules from April 2004
If you went bankrupt before April 2004 then it was the case that the official receiver could come back at any time in the future and sell your property. This has now changed. The official receiver has three years from 1 April 2004 to deal with their interest in your property.
After this date, if no action has been taken, your home will belong to you. This will apply to you if you are already bankrupt on that date or are made bankrupt in the future.
The official receiver will have these options:
- come to an agreement with you about the property;
- sell your home;
- apply for an order for sale;
- apply for a charge on your home.
This means that you should not be left with the possibility of the official receiver coming back years after your bankruptcy has ended wanting to sell your home unless a charge is placed on your home. In this case the official receiver can ask the court for an order for sale at any time in the future. Otherwise, the charge will be paid off when you sell your home (if your house is worth enough to cover your mortgage and the charge).
Back to top Phone us for advice 0808 808 4000
Will I have to pay anything from my wages?
This will only happen if your income is above the average and it appears that you might have available income after paying ordinary household expenses. The official receiver can look at your income and expenditure and decide if payments should be made and at what level. When looking at how much you could pay they will take into account essential expenses such as your mortgage, rent, household bills and housekeeping.
Income payment orders and income payment agreements
Under the Enterprise Act most bankruptcy orders will end after one year. You may be asked to sign a legally binding agreement to pay monthly instalments from your income to the official receiver for three years from the date of the agreement. This is called an income payments agreement. If your circumstances change then you need to tell the official receiver as the agreement can be looked at again. If you do not pay the official receiver can go to court for an income payments order instead.
If you do not make a voluntary agreement then the official receiver can ask the court to order you to pay the instalments they want. This is called an income payments order and will run for three years from the date of the order. You can ask the court to look at this order again if your circumstances change.
Back to top Phone us for advice 0808 808 4000
The effects of bankruptcy
- You will usually have to close your bank or building society account when you are made bankrupt. You may be able to open another one as long as the bank or building society allows you to. You must tell the bank or building society that you are bankrupt. It is important to wait to open the account until after you have gone bankrupt. It is up to the bank to decide if you can open an account with them.
- Information
-
A lot of banks will not let you open an account when you are bankrupt. We have details of instant-access type accounts that may be able to help. With these accounts you can have a cash card but no cheque book or cheque guarantee card. Phone us for advice.
- Gas, electricity and telephone companies usually want you to pay in such a way that involves you not having credit. If you live with a partner you could transfer the account into their name. Sometimes a deposit is also asked for as security.
- In general, a business with little or no assets may be allowed to continue trading. A business with assets is likely to be closed if the official receiver decides that the assets need to be sold to repay your creditors. You may be able to continue to be self-employed but you may find it difficult if your type of work involves using credit of more than £500. Credit can include being given time to settle bills such as 30 day invoices.
- Information
-
If you have a trading business you should contact Business Debtline for advice on 0800 197 6026.
- Depending on the type of job that you do your employment may be affected. Always check your contract of employment to see if bankruptcy is mentioned. You can also ask your staff welfare officer or trade union if you are uncertain. If you belong to a professional body which prohibits bankruptcy you could be struck off, e.g. solicitors or accountants.
- Warning
-
If you handle money your employment could be at risk. If you work in the finance industry you will lose your consumer credit licence.
- Even after the bankruptcy period you may find it difficult to obtain credit. The bankruptcy order will be registered with credit reference agencies for at least six years and even after this time you may be asked whether you have ever been bankrupt before when applying for some credit, particularly a mortgage. Details of your bankruptcy are also kept on the Individual Insolvency Register for three months after the date of your discharge from bankruptcy.
- Details of your bankruptcy are usually published in a trade paper called ‘The London Gazette’. From 6 April 2009, your bankruptcy details will not usually appear in your local paper. The Official Receiver may decide to advertise in exceptional circumstances if, for example, they think you have not told them about all your assets.
Back to top Phone us for advice 0808 808 4000
Bankruptcy offences
Whilst you are bankrupt it is a criminal offence to:
- take out credit of more than £500 without telling the lender you are bankrupt;
- use a new business name without revealing the name you were made bankrupt under;
- act as a director of a company without permission;
- act as an insolvency practitioner.
Back to top Phone us for advice 0808 808 4000
Bankruptcy restriction orders
Under the Enterprise Act you will usually be discharged from bankruptcy after one year. New rules have been brought in that give the court power to make a bankruptcy restriction order against you if the official receiver feels your behaviour has been dishonest in some way or there has been ‘unfit’ conduct.
- Warning
-
A bankruptcy restriction order can last for between two and 15 years and will appear on a public register and on the Insolvency Service website www.insolvency.gov.uk. This is a searchable public register and your entry includes details of your name, address, date of birth and an outline of the reasons why a bankruptcy restriction order was made against you. It will also include information on how long the order will last. If you break the order it can be a criminal offence.
Unfit conduct can include:
- not keeping proper accounts for your business in the last two years before you go bankrupt;
- gambling;
- trading whilst you knew you couldn't pay your debts;
- taking out credit which you knew you couldn't pay;
- giving away your assets to avoid them being included in the bankruptcy;
- paying some creditors over others;
- failing to cooperate with the official receiver;
- concealing property from the official receiver.
A bankruptcy restriction order means you are not allowed to:
- apply for credit over £500 without telling the lender about the order;
- become an MP or local councillor;
- be a director of a company or form a new company without permission;
- be an insolvency practitioner.
- Warning
-
A bankruptcy restriction order does not stop the official receiver from taking criminal proceedings for an offence such as selling goods you have on a hire purchase agreement or for putting false information on a loan application.
Back to top Phone us for advice 0808 808 4000
Discharge from bankruptcy
Under the Enterprise Act 2002, if you go bankrupt on or after 1 April 2004 you will usually be automatically discharged from your bankruptcy after one year however much you owe. If you cooperate with the official receiver this can happen even earlier.
- Warning
-
These rules do not apply if you have had a previous bankruptcy or your automatic discharge has been suspended. This may be because the official receiver stops your discharge going ahead if you do not cooperate whilst bankrupt. Phone us for advice.
If you need proof of your discharge you can ask the court for a certificate of discharge but this will cost £60.
You can also apply to have your bankruptcy annulled if you have paid all the debts and expenses of the bankruptcy in full, or a bankruptcy order should never have been made. If you want further information on these points, phone us for advice.
Back to top Phone us for advice 0808 808 4000
Alternatives to bankruptcy
Individual voluntary arrangements
An individual voluntary arrangement (IVA) is a formal arrangement through the county court and can be a way of avoiding bankruptcy. You need to be able to raise a lump sum to pay the creditors or to make regular payments from your income to your creditors.
To arrange one you need to find an insolvency practitioner prepared to work for you. The insolvency practitioner prepares a proposal to put forward to your creditors. If the creditors who are owed 75% in value of your debts, who choose to vote, agree to accept the proposal then the IVA is put in place.
- Information
-
An IVA will usually last for three to five years. If the arrangement is not kept to, the insolvency practitioner or your creditors can apply for a bankruptcy order to be made instead.
Insolvency practitioners' fees can be expensive and they will usually want some payment in advance. It is worth asking them for an initial free meeting to discuss whether an IVA is appropriate.
- Information
-
If you are interested in setting up an IVA, phone us for advice. We will be able to discuss an IVA with you, as well as advising you on what other options you may have for dealing with your debts.
- Warning
-
Be careful of companies who offer to put you in touch with an insolvency practitioner for an up-front fee. You can contact an insolvency practitioner yourself without paying a fee to a third party.
- Factsheet
-
We have a fact sheet on ‘Individual voluntary arrangements’, which may be of assistance to you. Phone us for a copy.
Fast track individual voluntary arrangements (FTVA)
Even if you have been made bankrupt it is still possible to have a special form of IVA called a fast track individual voluntary arrangement (FTVA), which means your bankruptcy order can be annulled. You have to put forward a payment proposal to your creditors that would mean they will be paid more than they would under your bankruptcy.
The official receiver runs the FTVA for you if they agree with your proposal. The FTVA is cheaper then an ordinary IVA as there are set fees and costs. If it fails then your creditors could try to make you bankrupt again.
- Warning
-
You need to carefully weigh up the advantages and disadvantages of asking for an FTVA. Phone us for advice.
Debt relief orders
A debt relief order (DRO) is a new way of dealing with your debts. A DRO may be able to help you if you do not own your home, have assets worth less than £300 in total, and have less than £50 a month spare income to pay your creditors. Your total debts must be under £15,000. If your DRO application is successful then none of your creditors can take action to recover your debts for 12 months. The debts are then written off after the 12 months are up.
- Factsheet
-
We have a fact sheet on ‘Debt relief orders’ which may be of assistance to you. Phone us for a copy.
Informal arrangements and debt management plans
If bankruptcy or an IVA are not suitable options you may be able to make informal arrangements with your creditors. Our self-help pack ‘Dealing with your debts’ goes through how to negotiate with your creditors. If you have not had a copy of our pack, phone us for advice.
If you would like an organisation to act on your behalf to negotiate affordable payments you might want to consider a free debt management plan (DMP). This is a repayment schedule for unsecured debts.
- Factsheet
-
We have a fact sheet on ‘Debt management plans’, which explains more about this. Phone us for a copy.
Back to top Phone us for advice 0808 808 4000
Useful addresses
The Individual Insolvency Register
The Insolvency Service
5th Floor, West Wing
45-46 Stephenson Street
Birmingham
B2 4UP
Tel: 0121 698 4000
Fax: 0121 698 4406
www.insolvency.gov.uk
The Insolvency Service
PO Box 203
5th Floor
21 Bloomsbury Street
London
WC1B 3QW
Tel: 0845 602 9848
www.insolvency.gov.uk
Back to top Phone us for advice 0808 808 4000
Do I have to pay a fee to make an application in the county court?
There will usually be a fee to pay with your application. You can ask the court not to pay the fee in some circumstances. The form you will need to fill in is called an EX160 ‘Application for a fee remission’. This form needs to go to the court with your main application. If the court agrees your application you will not have to pay the fee or only have to pay part of the fee. If you pay a fee when you should have qualified for a remission, then you have six months to apply to the court for a refund. You can appeal to the Court Manager if you do not agree with a decision on fees.
- Warning
-
The court has very strict rules about the proof you need to give them about your income and benefits. If you are in an emergency and you do not have the money to pay the fee, or any proof of your income, the court may help you but you will have send the proof later.
Fee remission if you are on benefits
You will not have to pay the fee if you are on the following benefits:
- Income Support;
- income-based Jobseeker’s Allowance (JSA);
- the guarantee credit element of Pension Credit; or
- income-related Employment and Support Allowance; or
- Working Tax Credit if you are not getting Child Tax Credit as well.
You must ask the court for exemption from the fee. You need to give the court proof that you are getting the benefit. This must be a letter or notice that is less than one month old.
Fee remission if you have a low income
You will not have to pay the fee if your gross income (before tax and national insurance is taken off) falls below a set limit. This limit changes each year. Your income includes pensions, Child Benefit, Child Tax Credits, and child maintenance. Your partner's income is also taken into account as well as the number of children you have. You will need to give the court proof of your income. You need to give the court your Child Benefit notice to prove how many dependant children you have. If you have more than 4 children then you need to add £2,930 for each additional child.
| Number of children | Single | Couple |
|---|---|---|
| No children | £13,000 | £18,000 |
| 1 child | £15,930 | £20,930 |
| 2 children | £18,860 | £23,860 |
| 3 children | £21,790 | £26,790 |
| 4 children | £24,720 | £29,720 |
Is there any other reduction I can ask for or do I have to pay the fee in full?
You can also qualify for a reduction in the fee called a ‘part-remission’ by telling the court how much money you have left after paying essential bills such as rent or mortgage, childcare, maintenance and court orders.
There is a set amount allowed for living costs. The court can only take set items into account. They then work out what they call your ‘disposable monthly income’. If your disposable monthly income is below a set amount then you will not have to pay the fee. (This is £50 from October 2007).
You may only have to pay part of the fee depending on how the court has worked out your disposable monthly income.
The calculation is complicated and you will need to give the court proof of your income and bills at the time you apply. Ask the court for help or phone us for advice.
- Information
-
There is a fees section on the HM Court Service website that may be helpful.
http://www.hmcourts-service.gov.uk/infoabout/fees/index.htm.
Back to top Phone us for advice 0808 808 4000
- Remember
-
You can always phone us for advice about any difficulty you are having in dealing with your debts.
Freephone: 0808 808 4000 Website: www.nationaldebtline.co.uk
© Copyright National Debtline 1994 (updated July 2009).
Whilst we endeavour to keep the content of our website as up to date as possible, National Debtline cannot be held responsible for any changes in legislation or for developments in caselaw since this information was published.
Downloads on this site
Sections of this site require Adobe Acrobat Reader.
If you do not have Adobe Acrobat Reader you can download it free here
Wherever you see the PDF image, these files require the use of Adobe Acrobat Reader.
Page options
- Print as: HTML / PDF
- Email this page to a friend