What is bankruptcy?

Bankruptcy is a way of dealing with provable debts that outstrip your assets and that you have no realistic hope of paying. A court order is may be made which writes off your debts. This ends your liability to your creditors. 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 but can be as long as 15), you will be discharged. Most of your outstanding debts are written off and you can make a fresh start.

How much does it cost?

The cost for bankruptcy is £525 (the deposit) plus £180 (the court fee). If you are on a low income or in receipt of certain state benefits you may be able to claim a discount of up to 100% of the court fee. There are no discounts possible for the deposit.

Do I have to attend court?

There is a court hearing, and generally you would need to go along. The court is a civil court, not a criminal one. It is usually the case that you would visit the judge in his or her chamber. This is a small room, the process is relatively informal. The judge does not wear a wig or a gown. The hearing usually lasts a few minutes.

What happens next?

An ‘official receiver’ is appointed to handle the administration of the bankruptcy. You are likely to be interviewed over the telephone. It is the official receiver’s job to deal with your creditors. In certain circumstances (for example if you own a lot of valuable items) a separate insolvency practitioner may be appointed to deal with your assets. The person who deals with your assets in bankruptcy is known as the ‘trustee’. If you would like to read more about assets in bankruptcy you can find out more via our fact sheet, here.

Goods are not seized, but if you refuse to use any assets to clear debt then bankruptcy will probably be refused.

I own my home, what would happen to it?

If you own property then this might be sold depending on whether it has any equity in it. If your partner and children live there then there are rules about how quickly this can happen. You share of the equity is called your ‘beneficial interest’. Once you have gone bankrupt, your beneficial interest in your home is transferred to the official receiver or trustee. If you are the sole owner then the whole of the value in the property is transferred to the official receiver or trustee.

With jointly owned property the official receiver or trustee is usually only entitled to the bankrupt person's share of the equity (that is their ‘beneficial interest’). Depending on your circumstances, you may be considered to have a beneficial interest even if you are not named on the mortgage. It may be possible for the joint owner or family and friends to make an offer to the official receiver or trustee to buy out your share of the equity. This can be particularly helpful if there is little or no equity. If you have no equity in the property, or if it is in negative equity, you may be able to keep the property. You would need to keep paying the mortgage and any secured loans, these do not get written-off as part of a bankruptcy order. If you would like to read more about the home in bankruptcy you can find out more via our fact sheet, here.

What if I rent my home?

If you rent your home, your tenancy agreement may allow your landlord to evict you if you go bankrupt. Check the terms and conditions of your tenancy carefully to see if your landlord can do this. If you have rent arrears from before the date of your bankruptcy order, your landlord can still take court action to evict you from your home. However, they cannot get the arrears back from you because they are a debt that will be included in your bankruptcy. If you build up any rent arrears after the date of your bankruptcy order, your landlord can take action to evict you and get the arrears back.

Will I have to pay anything from my wages?

If you have spare income (or ‘surplus income’) after paying ordinary household expenses, you may be asked to pay this money in to the bankruptcy for three years. This is known as an ‘income payments agreement’. You would still be discharged from the bankruptcy after twelve months. When looking at how much you could pay the official receiver will take into account essential expenses such as your mortgage, rent, household bills and housekeeping.

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 ask the court to order you to pay the instalments. This is called an ‘income payments order’. If you do not make a voluntary agreement then the official receiver can ask the court to make an ‘income payments order’. This 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.

What are 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.

• 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 able to continue trading. A business with assets is likely to be forced to close if the official receiver decides that the assets should 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 £500 or more. Credit can include being given time to settle bills, such as 30-day invoices.

• 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 does not allow you to be bankrupt, you could be struck off. For example, this may affect solicitors and accountants.

• Under the rules in the Consumer Credit Act 1974, your creditors will usually have to keep sending you annual statements, as well as arrears and default notices in a set format. This will happen even when you are bankrupt but should stop once you are discharged. Don’t worry; this does not mean that there is a problem with your bankruptcy. If you receive other letters demanding payment, you should take this up with the official receiver.

• 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. Even after this time you may be asked whether you have ever been bankrupt, 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’. 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.

Whilst you are bankrupt it is a criminal offence to:

• take out credit of £500 or more 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 limited company without permission; or

• act as an insolvency practitioner.

What debts are excluded from bankruptcy?

Although your liability for most debts will be written off once you are discharged, there are exceptions to this. Even after discharge you will still be personally liable for:

• magistrates’ court fines;

• student loans;

• arrears of maintenance or maintenance payments ordered by a court;

• Child Support Agency arrears;

• debts you built up through fraud; and

• debts you owe as a result of a personal injury claim against you.

This is not a complete list of the debts that you will still have to pay after your bankruptcy ends

This information only provides a brief overview, it should not be considered as full bankruptcy advice. If you believe that bankruptcy is likely to be the best option to help you with your debts it would be vital to seek impartial advice from one of the debt advice charities such as the Citizens Advice Bureau , Stepchange, Christians Against Poverty or National Debtline .

It is important that you take note if you use the website of the above charities, there are look-a-like sites designed to fool you into thinking you have the real site but will charge.

Never ever give any payment details to anyone over the phone or on a website.

Further information:

The National Debtline bankruptcy fact sheet - NEEDS NEW LINK

How to petition for your bankruptcy - the Insolvency Service - NEEDS NEW LINK

A guide to bankruptcy - The Insolvency Service - NEEDS NEW LINK

What happens to my home in bankruptcy - The Insolvency Service - NEEDS NEW LINK

All bankruptcy-related Insolvency Service publications can be found here

Never pay for advice or use a company that asks for a fee. All required advice can be obtained without having to pay.