Bankruptcy is a debt solution for people who are unable to pay their unsecured debt each month. People entering bankruptcy will have more unsecured debt than equity in any other assets (such as a house or shares in a company). Sometimes an IVA is a suitable solution for people with debt problems and considering bankruptcy, however should the IVA fail then bankruptcy may be applicable.
The bankruptcy debt solution is only available for people who live in England, Wales and Northern Ireland. The Scottish equivalent is sequestration.
You can petition for your own bankruptcy or if one of your unsecured creditors is owed at least £750 they can petition for your bankruptcy. In April 2009 the Debt Relief Order (DRO) was made available as a new route into bankruptcy. The DRO is an easier and cheaper route to become bankrupt but only people who meet the qualifying criteria can enter the solution. If you owe less than £20,000, you don’t own your own home, have less than £50 disposable income every month and don’t have any assets worth more than £1,000 then the DRO could be suitable for you.
Cost of entering Bankruptcy
From 6th April 2016, changes to the process for entering bankruptcy were introduced. The cost of entering Bankruptcy is £750 which is split between the administration fee (£525) and the application fee (£130). This fee must be paid when you submit your application or you can make payments to save for your bankruptcy.
Too often we speak to people where they have entered bankruptcy without seeking professional debt advice. This can mean that assets, like a house or car, are being sold when they originally believed they would not be considered in the bankruptcy solution. Also, there are guidelines on acceptable levels of expenditure and if you have a disposable income you could be asked to pay this into the bankruptcy solution.
It’s for this reason we strongly recommend getting bankruptcy advice before proceeding.
What is not included in Bankruptcy?
There are some debts which are not included in a bankruptcy. For instance, if you owe money to your student loan this cannot be included within your bankruptcy. Similarly, if you have any secured debts, these are not included and you should maintain payments to these debts. This is typically the case if you have a mortgage on your property with a secured loan too. If you are unable to maintain payments to your secured loan then you would risk your property being repossessed.
Criteria to enter bankruptcy
- Your unsecured debt must be above £750 to enter bankruptcy
- You will need to complete the online application
- You must be able to pay the fee to enter the bankruptcy solution
ADVANTAGES & DISADVANTAGES OF BANKRUPTCY
You will no longer have to deal with your creditors.
Once your bankruptcy is completed you will be able to start again financially, without any debt.
You no longer have to make payments towards your creditors. (If you have available disposable income you will have to contribute this under an Income Payment Order for 3 years.)
Your credit rating is likely to be severely affected.
You cannot acquire credit of £500 or more without disclosing you are bankrupt.
You cannot be a director of a limited company.
You may lose your home and car.
Some employers will not allow you to enter bankruptcy and in doing so you could lose your job. You should check your contract of employment first.
If you receive income for employment, a private pension or any other form of income which is not state benefits then you may be asked to make payments to your bankruptcy for 3 years.