UPDATE 5 April 2016: This article was originally published in December 2011. The bankruptcy application process for people living in England, Wales and Northern Ireland is changing in 2016. Visit our bankruptcy changes page for more information on the new application process and fees for England and Wales residents. Changes for Northern Ireland residents will come into effect in November 2016.
This week we’re investigating bankruptcy, to tie in with our new guide to personal bankruptcy. Today we start from brass tacks and tell you the basics of bankruptcy.
We talk about ‘bankruptcy’ all the time, but for those with little idea to what that scary term means, we thought we’d go back to basics.
With so many terms, forms, and procedures to go through it can be a nerve-wracking experience. Here’s our beginner’s guide to bankruptcy…
The basics of bankruptcy
Bankruptcy is a form of insolvency and may be suitable for people that have no means whatsoever of clearing their debts within a reasonable timeframe.
Who can go bankrupt?
If you can’t afford your debts, you don’t have assets that could be sold to clear them, and your situation is unlikely to improve in the future, bankruptcy could be the solution for you.
What does bankruptcy cost?
It might come as a surprise but you have to pay to declare yourself bankrupt.
The bankruptcy fees add up to £705; this is split into two parts – £180 for the court fee and £525 for the official receiver’s fee.
(Update July 2016: Bankruptcy fees have changed. You can find the updated bankruptcy fees on our website)
If you’re on benefits or a low income you can apply for the court fee to be waived by filling out an EX160 form. If you have no way of raising the official receiver’s fee, there are trust funds that might be able to help.
(Update July 2016: you now apply for help court fees by filling in an online form)
It’s important to note that if you and your partner are going bankrupt you will both need to pay the fees and petition individually. If you have any joint debts with someone who isn’t going bankrupt, bankruptcy will remove your liability for the debts and the other named person becomes wholly responsible for the outstanding balance.
Should I go bankrupt?
It’s vital that you seek free and independent debt advice before deciding if bankruptcy is your best solution. We can look at your circumstances and determine whether there are any other options that could be more suited to your financial situation.
We have a specialist bankruptcy support team that can help you fill out the forms and support you throughout the whole process. They can also look at your circumstances to see if there is any assistance available to help you pay your fees.
What do I have to do to go bankrupt?
Once you’ve decided that bankruptcy is definitely right for you make an appointment at your local county court. Some work on a ‘first come first served’ basis, so it’s best to call them and find out beforehand.
You will need to present your forms and pay you fee at the court. It’s likely that your bank account will be frozen so it’s important that you have access to some money if this happens.
The judge may or may not ask to see you. If they do it will be in a private back office rather than ‘in the dock’. It’s an informal meeting.
Once the bankruptcy is approved the official receiver will schedule an interview with you. This could be over the phone, and not always on the same day.
What does the official receiver do?
It’s their job to look through your finances. They will deal with any assets and if you have more than £20 surplus in your budget you could be asked to pay something towards your bankruptcy for the next three years. This is called an Income Payment Agreement and you will only have to pay it if you have the money available and it’s affordable.
What happens after bankruptcy?
Once you’ve declared yourself bankrupt your unsecured debts are written off. Your creditors can no longer contact you or hassle you for payments.
It’s vital that you keep your official receiver updated with any changes in your circumstances.
Bankruptcy usually lasts 12 months and most people are discharged after this period. It will affect your credit rating for six years and it’s likely that you’ll find it difficult to access mainstream credit during this time.
Where can I get bankruptcy advice?
If you’re struggling with debts and think bankruptcy could be for you, we can help. It can be a difficult and complicated decision to make and there’s a lot more to consider than we’ve mentioned here.
Please note this advice applies to England and Wales only. For Scottish and Northern Irish advice please refer to our website.