There are various options available for people looking to break free of debt. One of these is bankruptcy. Bankruptcy is a type of insolvency that people undertake when they cannot repay the money they owe.
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If you declare bankruptcy in the UK, personal assets such as your car and any properties you own will usually be sold off to repay your outstanding debts. As such, if your assets are worth more than your debts, or you can continue to afford to make your debt repayments, personal bankruptcy is not recommended as the best option for you. Whilst bankruptcy may be a good option for some, there are many restrictions connected with it, such as it being very difficult for you to get further credit in the future. Furthermore, some debt such as student loans, secured debts, child support and fines are not covered by bankruptcy. Therefore, declaring bankruptcy may still leave you with debts that need to be repaid. Because of these factors and many others, bankruptcy should only be undertaken once you have spoken to a financial expert and all other options have been considered.
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Bankruptcy is just one of several options to be considered when an individual cannot repay their debts. If you are ever faced with the prospect of bankruptcy, you should always look at alternatives as soon as possible such as an Individual Voluntary Arrangement or a Debt Management Plan. Bankruptcy can free you from overwhelming debt to give you a fresh start on your finances, however it is a serious commitment and should not be entered into lightly.
Bankruptcy has two main aims:
Anyone can go bankrupt, including individual members of a partnership. There are different insolvency procedures for dealing with companies and for partnerships themselves.
The Courts are officially responsible for making a bankruptcy order against an individual, although this is usually done at the request of either the individual or one of his/her creditors.
The assets of the bankrupt individual then fall under the control of a Trustee, this will be either the Official Receiver (a civil servant and officer of the Court), or a licensed Insolvency Practitioner. Whoever is appointed becomes responsible for uncovering as much as possible about the debtor’s assets and liabilities and then maximising returns for the creditors from the assets available, within certain guidelines.
Once a bankruptcy order has been made against you, your creditors can no longer pursue you for payment. Making payment to your creditors becomes the responsibility of the Trustee.
There are three fees you may have to pay when you take your petition and statement of affairs to the court:
In some circumstances the Court may waive this fee; for example, if you are in receipt of certain benefits. If you are not sure whether you qualify for a reduction in the fee, or if you are exempt from paying the fee, Court staff will be able to advise you.
This deposit is payable in all cases and helps meet the official receivers’ costs.
In a County Court, no charge is made to swear the affidavit, which is part of your statement of affairs. But in the High Court or before a solicitor there is a £7 charge.
If you are a married couple and you are both applying for bankruptcy, you will each have to pay separate fees. If you were in business as a partnership, each partner will have to pay separate fees, unless all parties apply for a joint bankruptcy petition under the Insolvency Partnerships Order 1994 (Form 16).
The above fees should be paid in cash, postal orders, or by a building society, bank or solicitor’s cheque. Cheques should be made payable to H M Paymaster General. Personal cheques will not be accepted.
Once you have been made bankrupt all assets belonging to you come under the control of the Trustee, including your home. If you live with a partner and/or children, then a period of twelve months may be allowed for other living arrangements to be made. At the end of the twelve-month period, the property will almost certainly have to be put up for sale, enforced by a Court order if necessary. If you own the property with someone else, they may be able to make an offer to buy out your interest in the property from the Official Receiver.
You may not:
When you are discharged from being bankrupt these constraints are ended.
You can keep:
You can keep any tools, books, vehicles (if low value) and other items of equipment needed personally in your employment or business. You will also be able to keep your clothing, bedding, furniture, and basic household items.
Bankruptcy petitions are usually presented either at the High Court in London or a County Court near to where you live or trade.
A petition can be presented against you even if you are not present in England or Wales at the time, providing you normally live in, or have a recent residential or business connection with, England or Wales.
The address and telephone number of your local County Court is listed under ‘Courts’ in the phone book, where you should look for ‘Civil Courts – County Courts’ and not ‘magistrates’ Courts’. The Courts Service website at: https://www.gov.uk/government/organisations/hm-courts-and-tribunals-service has an index of County Courts that will show you the area where the County Court has jurisdiction. However, you will need to contact the Court to find out if it has jurisdiction to hear a bankruptcy case.
Court will either hear your petition straight away or arrange a time for the Court to consider it.
If English in not your first language and you need an interpreter, the Court will not be able to help you find one. You will have to do this yourself and pay interpreter’s fees.
At the hearing, the Court can do one of four things:
The Official Receiver is a civil servant and an officer of the Court. He is responsible for administering bankruptcies and will act as a Trustee of your estate unless a private sector Insolvency Practitioner is appointed.
One of the Official Receiver’s main duties is to investigate your financial affairs for the time before and during your bankruptcy.
An Insolvency Practitioner can be appointed Trustee instead of the Official Receiver, they must be licensed and are usually accountants or solicitors. The Insolvency Practitioner is then responsible for the disposing of your assets and making payments to your creditors.