Bankruptcy is a formal debt solution. It’s one way you can clear your debts in 12 months and you can apply online. However, it can have long-lasting effects on you and you should consider these before applying.
It’s best suited for people who can’t afford to pay their debts off within a reasonable timeframe. That means if you owe a lot more than your existing income and any assets you own, it might be right for you.
The main ways you can go bankrupt is if a creditor petitions for your bankruptcy or if you apply for bankruptcy yourself.
Entering into bankruptcy is a big decision to make. But sometimes, you might not make this decision yourself. That’s because other people can make you bankrupt.
There are three ways you can go bankrupt. They are:
If a creditor wants to make you bankrupt, they’ll have to apply for a bankruptcy petition to be served against you. They can’t just do this if you owe them any amount of money – there are three qualifying criteria.
You must owe at least £5,000 for a creditor to make you bankrupt. This is the minimum total debt you need to have, not how much you’ll have to owe to one creditor. However, if you owe £5,000 in total, your creditors would have to join together and apply for your bankruptcy collectively.
You must also live in England or Wales. You must have been living there for at least six months in the last three years. If you live in Scotland or Northern Ireland, different bankruptcy rules apply.
You must also have little or no realistic ability to repay your debts. This just means that if you could repay your debts on a new repayment plan or by the creditor freezing your interest and charges, bankruptcy won’t apply.
You can now only petition for bankruptcy online. Unlike the creditor bankruptcy petition, there’s no minimum debt level. You just need to be unable to repay what you owe, and you’ll need to prove your situation.
To apply for bankruptcy, you’ll need to submit details of your current financial circumstances. This includes your income, expenditure and your debts. You’ll need evidence of these – so make sure you have any wages slips, benefits statements, bills or letters from your creditors.
You’ll have to pay the bankruptcy costs and fees of £680. If you can’t afford to pay this in one go, you can pay it in instalments. Your bankruptcy won’t be able to be submitted until you’ve paid it all though.
After you’ve applied online, an Official Receiver will then review this. This is someone who works for the Insolvency Service and manages the initial stages of bankruptcy. It’s their job to decide if you should be made bankrupt or not.
If the Official Receiver decides to issue you a bankruptcy order, this means your bankruptcy is accepted. The Official Receiver will then review your liabilities and assets, and they’ll also contact your creditors.
If you are currently in an IVA, your IVA supervisor can petition for your bankruptcy. They can do this if you:
Within 12 months from the date you started your bankruptcy, you should be discharged. This will only happen if you’ve met all your legal obligations – so if you’ve paid everything in or sold any assets that you need to.
You can, however, be subject to an Income Payment Agreement (IPA) or Income Payments Order (IPO) for up to three years. With an IPA/IPO, you’ll have to make monthly payments towards your debts. You’ll only have to do this if you can afford to, after your essential bills have been paid.
If you’ve got unmanageable debts and it’s unlikely that you’ll be able to pay these back within a reasonable timeframe, you might consider bankruptcy. With bankruptcy, your debts could be paid off in just 12 months.
It is likely to have some negative consequences for you but it does mean that you can start rebuilding your finances.
But as bankruptcy is a formal insolvency, it’s subject to some quite strict rules. Some of these rules are about who can apply for bankruptcy – only certain people in certain situations will qualify.
If you owe your creditors at least £5,000, they could petition for your bankruptcy. This means they could force you to go bankrupt.
But if you want to apply for bankruptcy yourself, there’s not a minimum debt level. You’ll just need to show that you wouldn’t be able to repay your debts in a reasonable amount of time.
You’ll also need to have lived in England and Wales for at least six months in the past three years. If you live in Scotland or Northern Ireland, you’ll have to go through your country’s respective bankruptcy process.
You can’t include all debts in bankruptcy – there are some debts that are excluded. These include:
Bankruptcy isn’t for secured debts– so no mortgages or car hire purchase. If you did include these in your bankruptcy, your lender would take back the property that the debt was secured against e.g. your house or car.
Although bankruptcy can mean you clear your debts in just 12 months, that doesn’t mean it’s suitable for everyone.
Bankruptcy can be the right debt solution for certain people. It can help you clear your debts in just 12 months, meaning you can focus on getting your life back under control.
But bankruptcy can have some negative effects on you too. Let’s take a look at the consequences of bankruptcy on your life and your finances.
