Bankruptcy – what is it?

If you have found yourself in serious debt, bankruptcy could offer a chance to make a fresh start and be protected from people that you owe money to.  It can be a realistic and suitable option for addressing significant debts, but it may not be your only option.  You should take advice at an early stage.

As well as applying to make yourself bankrupt, someone else you owe money to (a creditor) can apply to make you bankrupt.  For a creditor to make you bankrupt, you must owe at least £5,000.

Advantages of bankruptcy

There are number of ways in which bankruptcy can help you:

1. It is a chance to make a fresh start.  In most cases, you will be free from the effects of bankruptcy after one year.
2. You do not have to deal with your creditors.
3. The money you owe will be written off.
4. You are allowed to keep certain household possessions and a reasonable amount to live on.
5. Court actions against you usually stop as soon as you are made bankrupt.

Disadvantages of bankruptcy

Here are some of the disadvantages of bankruptcy:

1. You will have to find the fee (£680 as at January 2017) to apply to make yourself bankrupt (unless a creditor petitions for your bankruptcy).
2. All your debts will not be included such as a mortgage and other secured debts, magistrate court fines, debts payable after personal injury claims and student loans.
3. You have limited access to credit during bankruptcy.  You may have to pay higher rates of interest until your credit rating is restored.
4. If your income is high enough, you could be asked to make payments towards your debts for 3 years.
5. Your credit rating will be affected for 6 years.
6. If you own your home, it may have to be sold to pay your debts.
7. Some of your possessions such as a car and any luxury items may have to be sold.
8. If you work in a certain profession, bankruptcy could prevent you working in that profession again.
9. You cannot be a director of a company whilst the bankruptcy is in place without the permission of the Court.
10. Your bankruptcy will be published publicly.  The data is also given to credit reference and other agencies.

How long do the effects last?

Sometimes, it is possible to be discharged from bankruptcy but still be subject to its effects for a number of years afterwards.  A bankruptcy restriction order can last anything between 2 to 15 years.   This type of order could be made if, for example, you do not co-operate with the Official Receiver, your Trustee in Bankruptcy or you take on debts knowing you cannot repay them.

How to do it

You can apply to go bankrupt online by filling in a form at https://www.gov.uk/apply-for-bankruptcy. The cost is £680.

Are there other options I could consider?

Yes. There are alternatives to bankruptcy.  These include Debt Relief Orders, Debt Management Plans and Individual Voluntary Arrangements.  One of these may be appropriate for you, so it’s important to understand what they are and how they work.

We regularly advise on issues relating to bankruptcy (whether you are considering bankruptcy or making somebody bankrupt) and insolvency.  For further information, please contact Sunil Abbi at sunil.abbi@csklegal.co.uk.

Author: Craig Kelly

Craig is a commercial litigator. As a Solicitor-Advocate, Craig is able to conduct his own advocacy in the Courts with less reliance upon Counsel, resulting in less expense for clients. Craig is recognised as a leader in the field of dispute resolution, having been ranked accordingly in Chambers and Partners.