What-Happens-When-You-Declare-Bankruptcy-Care-About-Money

What Happens When You Declare Bankruptcy

Bankruptcy is a legal process which can help discharge your liability to pay your debts. Anyone who is unable to afford to repay their debts is able to petition for bankruptcy and it may seem appealing if you are facing serious debts. However, bankruptcy can have a big impact on your life, including putting your home at risk if you are a homeowner, so you must be sure you want to go ahead with it. So, what happens when you declare bankruptcy?

  • How To Apply For Bankruptcy
  • Support With Your Application
  • Going Ahead With Bankruptcy
  • Do I Need To Attend Court
  • Bankruptcy Is Approved
  • What Does A Trustee Do
  • Conclusion

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How To Apply For Bankruptcy

Firstly, you can apply for bankruptcy online at the gov.uk website. It will cost £680 to begin, which you can pay in full or in instalments. Before you apply, you will need certain information available including;

  • wage slips
  • benefits or pension statements
  • bills, such as electricity, credit card and council tax
  • letters from a bailiff or enforcement agent

The application form includes information about you and any business you run, as well as declarations about your eligibility for bankruptcy. You will also need to include details of any previous bankruptcies from the last 5 years as well as any other insolvency procedures you’ve been through. 

Support With Your Application

If you need some help with your application for bankruptcy, you can contact a debt advisor for support. They’ll be able to give you advice, including ideas for other ways to clear your debts before choosing bankruptcy.  You can get free advice by visiting the website of a fee free, charitable organisation such as the National Debtline or Citizens Advice Bureau.

Going Ahead With Bankruptcy 

By opting to declare yourself bankrupt, you are entering a legal process. The next step is to send your application form, payment and supporting documents to the Insolvency Service, along with a statement about your situation. 

An Adjudicator at the Insolvency Service will look over your application to ensure it is complete. They may also speak with you on the phone, but this isn’t mandatory. The adjudicator will decide whether to make a bankruptcy order. 

Do I Need To Attend Court?

You won’t need to go to court to declare yourself bankrupt. Instead, an adjudicator will assess your application and let you know about the decision. 

The adjudicator can still refuse your application, which sometimes happens if you’re able to pay off your debts. For example, you may be able to use some savings to pay back creditors instead. 

This means you are risking the initial £680 to begin the bankruptcy process if a court refuses your application. 

Typically, a positive decision is based on whether you are insolvent, which means you have no other way to pay your debts at the right amount. 

Bankruptcy Is Approved

So you have found out what happens when you declare bankruptcy, what’s the next stage if your bankruptcy is approved?  To start with, if the adjudicator makes the bankruptcy order, then you become bankrupt on the same day.  But what does this mean?

  • Creditors are not allowed to take any action against you to recover the debt. 
  • The Official Receiver will take control of your assets, this includes money in any bank accounts and item of excess value.
  • If you are a homeowner, the Official Receiver, (or Trustee if one is appointed) will put a notice on your property. They may sell your property to release equity for your creditors although they will give you the opportunity to have a third party ‘buy back’ your share of the property.
  • The Official Receiver will assess your income and expenditure and, if they consider that you can afford, request that you make monthly payments to the bankruptcy for up to 3 years.  If you refuse they can get a court order to force you to pay.

Whilst you are bankrupt it is a criminal offence to:

  • Take out credit of £500 or more without disclosing your bankruptcy status
  • Act as a director of a limited company (although you can apply for permission to do so)
  • Use a new business name without disclosing the name you were made bankrupt under

You will usually be discharged from the bankruptcy after 12 months. Any agreed income payments will continue and the Official Receiver or Trustee will continue to administer the bankruptcy but you will no longer be subject to the restriction of bankruptcy.

Most unsecured debts will be included in your bankruptcy but there are a few exceptions including criminal fines, student loans and social fund loans.

What Does A Trustee Do?

A trustee is responsible for getting the best deal for your creditors. This includes collecting your assets and selling them to get a return on what you owe. Therefore, a trustee will sell anything of value which isn’t exempt, exempt items include essential household goods, tools of the trade and a vehicle, all up to a reasonable value. 

Conclusion

Now you know what happens when you declare bankruptcy, you can see that it’s a very serious decision and can affect you for years to come.  However, for some people with extreme debt, it can be a helpful route for their circumstances at the time. 

It’s always worth speaking to a debt adviser first, to discuss all the debt solutions available to you before choosing bankruptcy.  There may be other ways to clear your debt before resorting to bankruptcy. Remember, you don’t have to face unmanageable debts alone and you can get free advice.