Most people are familiar with the term ‘bankruptcy’. If you’re struggling to pay off what you owe, bankruptcy can wipe out most of your outstanding debts, allowing you to make a fresh start. However, it can also negatively impact your credit file and is often only used as a last resort.
If you are planning to file for bankruptcy, you may be wondering exactly what the process involves and how you submit your application. In this article, we aim to answer those questions and give a clear outline of what declaring bankruptcy in the UK involves.
Preparing for Bankruptcy: What You Need to Know
As declaring bankruptcy is a significant step, there are a few things you should do first to ensure it’s the right option for you and prepare for the application process. These include:
- Seek professional advice
Before you declare bankruptcy, it’s a good idea to get in touch with a debt adviser who can help determine what the best debt solution is for you.
- Assessing your financial situation
Understanding your financial situation can help you complete the application. Take note of your debts, income, expenses and assets, and assess which debts bankruptcy will cover and what assets might be sold.
- Understanding the benefits and risks
As with any debt solution, there are pros and cons of bankruptcy. While it does provide relief from debt, it can mean you lose non-essential assets and face certain restrictions such as applying for credit over £500 without disclosure.
- Saving for the application fee
To apply for bankruptcy in England and Wales, there is an application fee of £680 so you’ll need to ensure you have enough money set aside to pay for this. There are also charities that may be able to help you with the cost.
- Withdrawing money for living costs
When your bankruptcy order is created, your bank accounts may freeze immediately. As there can sometimes be a delay of several days before the Official Receiver takes control, it may be worth withdrawing enough money to cover your costs for a few weeks.
Filing Your Bankruptcy Application
There are several steps to applying for bankruptcy, which we’ll list below. Please note that these are only applicable for England and Wales. Northern Ireland follows a similar process but the applicant must also attend a court hearing. If you’re based in Scotland, there is a different version of bankruptcy, known as sequestration.
- Decide if bankruptcy is the right option for you
As mentioned above, the first step in declaring bankruptcy is making sure it’s the right decision for you. Therefore it’s important to do your research and seek professional advice.
- Check you’re eligible for bankruptcy
There are certain criteria you’ll need to meet to be eligible for bankruptcy. You must be a resident of England, Northern Ireland or Wales, and be able to pay the bankruptcy fee.
- Gather the necessary information
When completing the application, you’ll need to provide information about your income, expenses and debts. It’s therefore helpful to have the following ready:
- wage slips
- benefits statements
- pension statements
- bills
- rents and mortgages
- council tax
- enforcement agent/bailiff letters
- court fines
- hire purchase agreements
- loans
- credit card bills.
- Complete the online application
You apply for bankruptcy on the Government website, which will ask you to fill in a form. You’ll need to confirm the information you have given is correct and agree to a credit check.
- Pay the bankruptcy fee
You won’t be able to submit your online application until you’ve paid the £680 fee, either in full or through instalments.
- Wait for the adjudicator’s decision
After you’ve submitted your application, the adjudicator will have up to 28 days to make their decision. You won’t be officially declared bankrupt until they accept your application and make a bankruptcy order.
What Happens After You Declare Bankruptcy?
After your bankruptcy order is made and you officially declare bankruptcy, a number of things will happen. Your bank and building society accounts will freeze so you’ll need to open a new basic bank account to receive any earnings or benefits and pay your bills. Your bankruptcy will also be published in The Gazette, which is open to the public.
There are certain rules and restrictions you’ll need to follow after you’ve been declared bankrupt. For example, you can’t:
- get credit of more than £500 without letting the lender know you’re bankrupt
- act as a director of a business without court permission
- work as an insolvency practitioner, charity trustee or registrar
- buy a house under the ‘Right to Buy’ scheme
- have power of attorney for another person.
Common Mistakes to Avoid During the Process
When applying for a bankruptcy, there are a number of things you can do to make the process go as smoothly as possible. Common mistakes to look out for and avoid include:
- Giving false or incomplete information
It’s essential to double check whether all information you have submitted about your sources of income and debt is correct. If it’s later discovered false information was given, you could be at risk of a longer bankruptcy period, fines or prosecution.
- Accumulating new debt before filing
If you know your accounts are going to be frozen, it may be tempting to spend before filing for bankruptcy. However, this is not advisable as it could be seen as irresponsible or even fraudulent by your Official Receiver.
- Transferring assets before filing
To protect your assets, you may be tempted to transfer to friends or family. The Official Receiver will look into your recent transactions and it could be seen as defrauding your creditors.
Next Steps After Your Application
Within two weeks of your application being approved, you will have an interview with your Official Receiver, whose role it is to investigate your financial affairs, inform your creditors and see what assets you can sell to cover your debt. Before your interview, you’ll be sent a questionnaire about your financial situation, which you’ll then discuss with them when you see them. This is also your chance to ask any questions you may have.
It is essential that you cooperate with the Official Receiver and if you do, you will be discharged 12 months from the date you were made bankrupt. At this point, all restrictions will be lifted though your bankruptcy will remain on your credit file for six years.
If you are considering bankruptcy, don’t hesitate to get free debt advice from places like MoneyHelper or contact our debt experts, who can advise on the options available to you.
