Bankruptcy

An individual can be made bankrupt by anyone to whom they owe more than £750. If you are under pressure from a creditor who is threatening to make you bankrupt, you need advice immediately.

It is nearly always preferable for you if you declare yourself bankrupt, rather than allow someone else to force you into bankruptcy. This is seen as taking a responsible attitude to you debts and also puts you in more control.

When you are bankrupt, your bankruptcy is usually discharged automatically after one year. Longer periods can be imposed if it is thought that the bankrupt person acted irresponsibly or unlawfully.

If you believe you are insolvent (this means you cannot pay your debts as they fall due) you must not sell assets at less than their true value, and you must take great care what you do with the proceeds of any sale. Also, you must not take on new debt which you know you cannot repay, and you must not use your money for non-essential purchases (e.g. a Caribbean Cruise)

Assets owned at the date of bankruptcy become the property of your Trustee in Bankruptcy (an Insolvency Practitioner or the Official Receiver). Where an asset is likely to increase in value, (e.g. a house) it is advisable to arrange that your partner or other close friend purchase your share of the equity in the asset from the Trustee as soon as you are bankrupt. This prevents the Trustee coming back to you later demanding the asset at its value then. The Trustee has up to three years to realise your assets, so that your house could be worth much more after this period. A settlement of the matter earlier is almost always the best route, but it must be done carefully and with a proper valuation, or the transaction will not be permitted by the Trustee.

As a bankrupt, you are not allowed to be a director, shadow director or officer of a limited company, and you cannot borrow more than £500 (including a purchase on credit terms) unless you inform the lender that you are a bankrupt.

At the time you are made bankrupt, all of your bank accounts will be frozen (so that you will not have access to any money in them). You will need to either get the Trustee to release the account or open up a new one. Many banks routinely close all accounts of bankrupt customers, so it can be difficult to open new accounts.

You can prepare for bankruptcy yourself. Any County Court will give you a free bankruptcy pack explaining the process. This pack is complicated, and you must attend Court in front of a Judge to swear that you have completed it accurately and completely. A Court fee will be payable. Currently, the fee is £150, plus £335 administration charge. If you are on a low income or benefits, you can apply for exemption from the court fee, but will usually still be expected to pay the administration charge.

You will then be called to meet with the Official Receiver, who will question you about your circumstances and assess what contribution (if any) you must make from your income to pay your creditors. If you have to make a contribution, this will last for three years, even though you will probably be discharged from the bankruptcy after one year or less.

Many people find this process daunting, particularly where the family home may be at stake. We can help you through the process if you need it. Our services include:

Debt and Bancruocy adviceBankruptcy – a complete guide to IVAs and business bankcrupcy

When you or your company are made bankrupt, your assets (possessions, home, income etc) can be used to pay your debts. You have to agree to certain restrictions and your financial affairs will be investigated. Find out how bankruptcy affects you and where to get advice on dealing with your debts.

see our Bankruptcy Advice Centre

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