Bankruptcy affects many people in the United Kingdom each year and it can feel daunting to have to actively consider it as an option to resolving your debt problems, but in the right circumstances it can be an effective option and save further stress and worry in the long term. Essentially it is a Court imposed order that is available to any UK resident if they are in serious debt difficulties and the Court’s appointment an Official Receiver who is permitted total control over any of the personal belongings, property and money which you may own at the time of requesting bankruptcy. The Official Receiver becomes the individual responsible for dealing with your financial circumstances and any creditors (individuals or organisations whom you owe money to.)

Is Bankruptcy Right for me?

If you are considering entering into bankruptcy proceedings it is always advisable to seek independent debt counselling and/or legal advice. There are two main reasons for this. Firstly a debt counsellor may be able to help you identify alternative options to declaring yourself bankrupt; which are less intrusive and will have less serious effect on your credit record. Secondly bankruptcy needs to be undertaken correctly and having some legal advice will ensure that it is discharged according to the correct procedures. The worst situation would be for you to do it yourself and believing that your debts have been cleared only to find out later down the line that a vital aspect or creditor has been missed.

As discussed previously bankruptcy is not always the best solution to your financial circumstances but if you decide to pursue this course of action there may be a number of benefits. One of the biggest pressures faced by individuals with debt problems is the constant stress of having to negotiate with those who are owed money (creditors) or attempt to resolve issues of acceptable payment levels. Some organisations can become aggressive and overbearing in terms of how they treat customers who are faced with financial difficulties. By applying for bankruptcy an Official Receiver is appointed by the Courts and their job is to essentially deal with creditors on your behalf. Bankruptcy almost always results in any money you owe to creditors being written off and because most bankruptcy’s are completed after a period of one year it should mean that you can start again from scratch without debt pressures weighing you down. Bankruptcy also enables you to keep some personal belongings and household related items and a small amount of money on which to live, which means that you will not be totally penniless afterwards. It is important to note that bankruptcy is no quick fix solution but it can be a hugely helpful option for those with significant financial difficulties.

Negative Affects of Bankruptcy

Bankruptcy is a difficult option to consider and there are a number of practical and social drawbacks to opting for a solution with includes bankruptcy. Firstly, after being legally declared bankrupt you are not permitted to apply for any additional credit, this includes loans, mortgages and credit cards. This means that you can only live off your own personal income without the back up of emergency credit facilities. It also costs money to declare yourself bankrupt. At present this is £495 but once paid it will kick start the bankruptcy proceedings. Obviously this is an additional cost to factor into your financial circumstances prior to making the decision, but potentially it could be money well spent. If your debts are substantial and you own equity like a house then it is probable that this would need to be sold and would leave you homeless. Whilst essential belongings are unlikely to be taken by the Official Receiver, items with a high value such as electrical goods or a vehicle that you may own, are likely to be taken from you in order to be converted into cash to pay creditors. If you are employed, consult your contract of employment or make discreet enquiries with your employer and check their policy on employment following bankruptcy. Some types of employers can have legal grounds to dismiss you if it is deemed that you are working in an environment where bankruptcy would be perceived to affect your standing, character or your ability to discharge your responsibilities in the future. Some banking institutions or legal professions are examples of where this might be problematic. Also consider the affect that bankruptcy may have on your social or work status given that all bankruptcy’s are published in the public domain and these are frequently picked up by local newspapers or press agencies.

Bankruptcy And Student Loans

Millions of people in the UK have a student loan and the cost of obtaining education at degree level has risen dramatically over the last ten years. If you are considering bankruptcy as a means of addressing a student loan debt then think again. Student Loans are not affected by bankruptcy proceedings and will never be written off.

Court Fines And Bankruptcy

Courts often impose fines on individuals convicted of criminal offences including theft, driving or motoring related offending, public order offences and minor violent offences. These fines are deemed to be a punishment and cannot be written off by bankruptcy.

How To File For Bankruptcy

Having examined the various benefits and negative aspects of bankruptcy now is a good time to move on to examine how you actually commence bankruptcy proceedings.

Step 1

Speak to a debt counsellor or legal advisor before starting the bankruptcy application process to ensure that you have considered every other available avenue to address your debt circumstances.

Step 2

Locate which Court which will deal with your bankruptcy application. Bankruptcy hearings normally occur in County Courts, which are civil rather than criminal Courts. These are normally located in the same building as a Crown Court which are usually in the main City of a County. If you live in a rural area you may need to travel to your main city to start the bankruptcy application process. For more information and to locate your County Court visit the Insolvency Service website at www.insolvency.gov.uk

Step 3

Attend the Court along with your deposit of £345, which will not be refunded to you. You are also likely to have to pay a further £150 administration charge but there are some instances where with additional fee may not be charged, especially if the Court is of the view that you are unable to afford the additional sum.

Step 4

Next you need to complete two important forms which provide more information about the nature of your application they are the statement of affairs form and bankruptcy petition form. You can get these from the County Court at which you need to make your application or access them online via the Insolvency Service at www.insolvency.gov.uk You will need to complete a two minute registration process with the National Insolvency Service in order to complete your bankruptcy application online.

There is some excellent supplementary advice that comes with the forms and help you understand the exact requirements of what you need to include. Take your time. It could take you between 1-2 hours to complete depending on the complexity of your financial circumstances but ensure you re read it.

Step 5

You should make two photocopies of the forms and visit your County Court, ensuring that you have the Bankruptcy fee with you. You also have to confirm to the Court that you have told the complete truth in the completion of your forms. It is an offence to falsify any information on a bankruptcy application and you may face criminal charges, so keep it accurate and truthful.

Step 6

After you have completed your forms in full and confirmed their accuracy you will be contacted by the Court with a date at which you must attend the bankruptcy hearing.

Making A Bankruptcy Order

At your hearing the Court may decide to deny your bankruptcy application, especially if they perceive that there are alternative options for dealing more effectively with your debt. It is therefore important that you are clear about the reasons behind applying for bankruptcy and that you have explored all other options first and sought professional debt counselling and/or legal advice . It is also important to remember that in the event of an Bankruptcy Order being granted it will usually be discharged after approximately one year, providing that you have fully co-operated with the process and provided correct information on your initial application.

If the Court decides to impose a bankruptcy order following your application it will take effect immediately and any financial accounts which you have access to will be effectively frozen by the Court until such a time as the Official Receiver can access them and deal with any cash amounts appropriately. It then becomes the Official Receiver’s responsibility to notify your creditors of the Bankruptcy Order and pay off your debts with what remains of any money, property or luxury goods and vehicles that you were in possession of at the time.

Bankruptcy Restriction Orders

Bankruptcy is not a coverall solution to financial difficulties and as discussed previously it is one of a number of options that could be considered. If the Courts perceive that an individual has failed to co operate throughout the bankruptcy proceedings or that debts have been accumulated recklessly and in the knowledge that you would be unable to pay them off then a Bankruptcy Restriction Order could be imposed by the Court. This order can remain in effect for up to fifteen years and imposes significant restrictions on your personal finances during that period. This order exists for the sole purpose of deterring individuals from being reckless with their financial affairs.

There is an excellent and in depth guide available about the bankruptcy process via the Insolvency Service website and you can view the full version Here

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