What is Bankruptcy?

Bankruptcy is a formal insolvency solution available to residents of England, Wales, and Northern Ireland, (the equivalent in Scotland is Sequestration) where your outstanding debts are written off.

Bankruptcy is usually seen as a last resort. It is legally binding and designed for people who are unable to repay their debts, with income or assets, in a reasonable time frame.

Is Bankruptcy the right option for me?

Declaring bankruptcy will involve the selling of any assets (including your home, cars, caravans, etc.), and abiding by certain restrictions during and after the application. Your details will also appear on a public Insolvency Register.

How do I declare Bankruptcy?

To declare bankruptcy, you will need to apply through the Insolvency Register in England and Wales, or through the High Court in Northern Ireland. Applying for bankruptcy will require an initial fee of £680. You can pay this in installments, but you’ll need to have paid the full amount before you submit your application.

A decision on your application for bankruptcy will return within 28 days. Once declared bankrupt, all assets of high value will be sold off, these include your home, and cars and all assets which will go towards paying back your outstanding debts. If you have spare income after covering reasonable living costs, you may also be asked to pay a monthly amount under an Income Payment Agreement (IPA).

How long does bankruptcy last?

The Bankruptcy process usually lasts around a year, after which any remaining debts will be written off.  

Applying for Bankruptcy

1. Before applying for bankruptcy, it’s important to seek financial advice from a regulated debt advisor. MoneyPlus Advice can review your debts and financial situation and advise on the best debt solution for you.
2. Should that be Bankruptcy, you will need to declare yourself bankrupt at the gov.uk site, outlining your current debts, creditors, and financial situation. After 28 days, if your application is successful, you’ll be declared bankrupt.
3. If your income is deemed substantial enough, you’ll be asked to pay a monthly amount towards your debts, in the form of an Income Payment Agreement (IPA) Once your bankruptcy term is complete (usually a year) your debts will be officially written off.

Am I eligible for Bankruptcy?

There are set requirements to be considered for bankruptcy, these include:

• Being a resident of England, Wales, or Northern Ireland
• Having no reasonable way to repay your debts through other methods
• Be able to pay an initial fee of £680 (this can be paid in installments)
• No possibility of being able to repay your debts in the future
• No spare income that could be used in another debt solution such as an Individual Voluntary Arrangement (IVA)

What debts can’t be included in Bankruptcy?

Though Bankruptcy typically includes most unsecured debts, there are some exceptions that will not be written off when declared bankrupt such as:

• Student loans
• Social fund loan
• Debts taken out fraudulently
• TV license arrears
• Magistrate court fines
• Debts taken out after you declared bankruptcy
• Child maintenance arrears

Living with Bankruptcy

Following your initial filing for bankruptcy, your personal situation will change significantly when you receive a bankruptcy order. An official receiver will take control of your possessions and any that are considered valuable assets may be repossessed.

If you have spare income each month (after covering reasonable living costs), you will likely be asked to make monthly repayments towards your debts based on what you can afford.

As your credit score will be negatively affected, getting future loans, mortgages or tenancies may become more difficult. Bankruptcy will remain on your credit file for six years, after which you can begin rebuilding your score.

Bankruptcy typically lasts for a year, once you reach the end of your bankruptcy agreement your debts are written off, allowing you to make a fresh start.

How Bankruptcy affects mortgages & renting

Mortgage

If you own a home with a mortgage solely in your name, the receiver will likely want to sell the house to recoup the entire equity. However, if the home is jointly owned, they will only take your share.

If you wish to keep your home, a family member or friend may be able to pay the equivalent equity to the receiver.

If your home has little or no equity value (below £1000) your home probably will not be repossessed. Instead, the value of the home will be reviewed to redetermine the property’s equity value.

If the property still holds no equity value at the end of 3 years, you will possibly be able to keep it. If it is determined your home now possesses equity value, you will likely be asked to sell. If it’s decided you need to sell your home, you will be given around a year to find somewhere else to live.

Renting

If your rent payments are currently up to date, then you should be able to stay in your current tenancy during your bankruptcy.

If you have outstanding rent arrears, these will be included in your bankruptcy. While a landlord can’t take legal actions against you, they can still evict you during this time.

It’s also important to keep in mind that some tenancy agreements may include a bankruptcy clause, terminating your tenancy in the event that you go bankrupt. This is something worth considering before applying for bankruptcy.

Finding future tenancies may be difficult with a negative credit score, private landlords may check the Insolvency Register before taking you on as a tenant. This may dissuade a private landlord from acceoting a rental application but this can in some instances be mitigated with a higher deposits or a guarantor.

Will filing for Bankruptcy stop bailiffs?

Any prior legal or debt recovery actions taken by your creditors will need to be logged when you file for Bankruptcy. Once officially declared bankrupt, you are granted legal protection and your creditors are no longer able to contact you directly. This means that any bailiffs or attempts to recover debts will officially cease while you are under your bankruptcy agreement.

What restrictions will I have during Bankruptcy?

During bankruptcy there a number of restrictions placed upon you that you must adhere to, these include:

• Borrowing over £500 without disclosing your current bankrupt status
• Being excluded from certain jobs, such as Insolvency Practitioner, Consumer Credit license holder, Charity Trustee
• Being a company director or running a company without a court permission
• Cannot rebrand if you are self-employed or without disclosing your bankruptcy to the people you do business with
• Cannot buy a house under a right-to-buy scheme

Are you seeking Bankruptcy and wish to know more?

That’s where our advisors come in, our expert advice team can help you find the debt solution that works for you. If you feel you may qualify for Bankruptcy, give us a call and we will help you work it out.

At MoneyPlus we understand that every financial situation is different, and approach every customer with the care and individuality that they deserve.

So, get in touch today and start living better with MoneyPlus Advice.