What is Bankruptcy?
Bankruptcy is a legal process that provides relief to individuals who are unable to pay their debts. It is a formal insolvency procedure that is designed to help people who are struggling with unmanageable debt to get a fresh start. In bankruptcy, the debtor’s assets are usually sold to pay off their debts, and any remaining debts are discharged. This means that the debtor is no longer responsible for paying them.
Bankruptcy is usually considered a last resort for those struggling with debt, as it can have a significant impact on a person’s credit rating and financial future. However, for those who are overwhelmed by debt, bankruptcy can provide a way to start anew and regain control of their finances.
In the UK, bankruptcy is governed by the Insolvency Act 1986, and there are specific requirements that must be met in order to declare bankruptcy. These include being unable to pay your debts, living in England, Wales or Northern Ireland, having at least £5,000 of debt, and not having declared bankruptcy in the past six years.
If you are considering bankruptcy, it’s important to speak with a licensed insolvency practitioner who can assess your situation and determine whether bankruptcy is the right solution for you. There are also alternative debt solutions, such as debt management plans, individual voluntary arrangements (IVAs), and debt relief orders (DROs) that may be more appropriate for your situation.
Overall, bankruptcy is a serious step that should not be taken lightly. It’s important to fully understand the process and consequences of bankruptcy before making the decision to declare bankruptcy.
Declaring Bankruptcy in the UK: How Does it Work?
Declaring bankruptcy in the UK is a legal process that can provide relief to individuals who are struggling with unmanageable debt. If you are considering bankruptcy, it’s important to understand how the process works and what steps you need to take.
The first step in declaring bankruptcy is to fill out an application form, which is called a bankruptcy petition. This form can be obtained from the Insolvency Service or from a licensed insolvency practitioner. The form requires you to provide detailed information about your finances, including your assets, debts, and income.
Once the bankruptcy petition is submitted, a court will review it and decide whether to declare you bankrupt. If your application is accepted, a trustee will be appointed to manage your assets and debts. The trustee will sell your assets, such as your home or car, to pay off your debts. Any remaining debts will be discharged, which means that you will no longer be responsible for paying them.
During the bankruptcy process, you will be required to cooperate with the trustee and provide them with any information or documents they request. You may also be required to attend a meeting with your creditors, where they will have the opportunity to ask you questions about your finances.
Bankruptcy typically lasts for one year, after which you will be discharged from bankruptcy and your debts will be written off. However, it’s important to note that bankruptcy can have long-lasting effects on your credit rating and financial future. It may also impact your ability to obtain credit, rent a home, or apply for certain jobs.
If you are considering declaring bankruptcy, it’s important to speak with a licensed insolvency practitioner who can assess your situation and provide guidance on whether bankruptcy is the right solution for you. There are also alternative debt solutions, such as debt management plans, individual voluntary arrangements (IVAs), and debt relief orders (DROs) that may be more appropriate for your situation.`
Debts that can be included in a Bankruptcy
When declaring bankruptcy in the UK, there are certain types of debts that can be included in the process. These debts can be broadly categorised into two types: unsecured debts and secured debts.
Unsecured debts are those that are not secured against an asset, such as a home or car. Examples of unsecured debts that can be included in bankruptcy include credit card debts, personal loans, store card debts, payday loans, overdrafts, and utility bill arrears.
Secured debts are those that are secured against an asset, such as a mortgage or car loan. While these debts can be included in bankruptcy, the asset itself may be sold to repay the debt. For example, if you have a mortgage and declare bankruptcy, your home may be sold to repay the debt. Other examples of secured debts that can be included in bankruptcy include car finance agreements, second mortgages, and logbook loans.
It’s important to note that there are some types of debts that cannot be included in bankruptcy, such as student loans, court fines, child maintenance payments, and some types of tax debts. In addition, if you have any debts that are joint with another person, such as a joint loan or credit card, the other person will still be responsible for repaying the debt.
When you declare bankruptcy, all of your debts that are eligible for inclusion in the process will be considered. The trustee appointed to manage your bankruptcy will review your finances and decide which assets, if any, need to be sold to repay your debts. Any remaining debts will be written off once your bankruptcy period has ended, typically after one year. However, it’s important to note that declaring bankruptcy can have long-term consequences on your credit rating and financial future, so it’s important to consider all of your options before making a decision.
Debts that are excluded from Bankruptcy :
- Student loans
- Court fines and penalties
- Child support and maintenance payments
- Social fund loans and budgeting loans
- Debts incurred through fraud or criminal activity
- Debts arising from personal injury claims or court awards
- Certain tax debts, such as VAT or PAYE that are owed to HMRC
- Debts that are owed to a landlord for rent arrears or damages
- Debts that are owed to a secured creditor for shortfall balances after the sale of a repossessed asset
It’s important to note that while these debts may not be included in bankruptcy, they will still need to be repaid or otherwise addressed separately. If you are struggling with any of these types of debts, it’s important to seek advice from a debt advisor or insolvency practitioner who can guide you on the best course of action.
What Happens After Declaring Bankruptcy?
- The Official Receiver will review your assets and liabilities to determine whether any assets need to be sold to repay your debts.
- Your bank account may be frozen, and you may be required to open a new bank account with a different bank.
- If you own a home or other property, it may be sold to repay your debts.
- You may be required to make payments towards your debts for a period of time, typically up to three years.
- Your credit rating will be affected and may make it difficult to obtain credit in the future.
- Certain professions, such as those in finance, law or accounting may be affected, and you may be barred from certain roles.
- You may have to declare your bankruptcy status when applying for jobs or certain types of credit.
- Your bankruptcy will be recorded on the Individual Insolvency Register and may be publicly available.
- Some debts, such as student loans and court fines, will not be included in your bankruptcy and will still need to be repaid.
- You may be required to attend credit counselling sessions to help you manage your finances in the future.
It’s important to note that the consequences of declaring bankruptcy can be significant and long-lasting, so it’s important to fully consider all your options and seek professional advice before making a decision.
Bankruptcy Pros :
- It may provide a fresh start by eliminating most of your unsecured debts and allowing you to start rebuilding your credit.
- Your creditors will no longer be able to pursue you for payment, and you will be protected from legal action.
- It can be a faster and more straightforward option for dealing with unmanageable debt compared to other debt solutions.
- You will not be required to make payments towards your debts for a period of time, typically up to three years.
- Your bankruptcy will be discharged after one year, and you will be released from most of your debts.
- If you own a home or other assets, these may be protected from creditors by certain exemptions.
Bankruptcy Cons :
- It can have long-lasting effects on your credit rating, making it difficult to obtain credit in the future.
- Some professions may be affected, and you may be barred from certain roles.
- Certain debts, such as student loans and court fines, will not be included in your bankruptcy and will still need to be repaid.
- Your bankruptcy will be recorded on the Individual Insolvency Register, which may be publicly available.
- Your assets, including your home, may be sold to repay your debts.
- You may be required to attend credit counselling sessions, which may impact your personal life.
Can I Apply for Joint Bankruptcy?
Yes, you can apply for joint bankruptcy with another person if you have joint debts that you are both unable to repay. This is known as a joint bankruptcy petition, and it allows both parties to deal with their debts together.
To apply for joint bankruptcy, both parties need to complete the bankruptcy application forms and submit them to the Insolvency Service. The forms will ask for information about your income, expenses, assets, and debts, and you will need to provide evidence to support this information.
Once your joint bankruptcy application has been accepted, a joint trustee will be appointed to manage your bankruptcy estate. The trustee will review your assets and liabilities to determine whether any assets need to be sold to repay your debts. If you own a home or other property, it may be sold to repay your debts.
It’s important to note that joint bankruptcy is not always the best option for everyone, and it’s important to seek professional advice before making a decision. Joint bankruptcy will have similar consequences to individual bankruptcy, such as affecting your credit rating and potentially impacting your profession or business.
Additionally, it’s important to understand that joint bankruptcy can have implications for both parties, as they will be jointly responsible for repaying any joint debts. This means that if one party is unable to repay their share of the debt, the other party may be liable for the full amount.
It’s also worth noting that not all debts can be included in joint bankruptcy. Debts that are held in only one person’s name will not be included, and joint debts where one party is able to repay their share of the debt may also be excluded. It’s important to review all of your debts and understand which ones will be included in the bankruptcy before applying.
If you are considering joint bankruptcy, it’s recommended to seek professional advice from a debt advisor or insolvency practitioner. They can help you understand the consequences of joint bankruptcy and advise you on alternative debt solutions if appropriate.
Finally, it’s important to ensure that both parties are willing to cooperate and work together throughout the bankruptcy process. Joint bankruptcy requires a high level of communication and cooperation, so it’s important to ensure that both parties are committed to resolving their debts together.