Bankruptcy

What is bankruptcy?
Bankruptcy is one way of dealing with debts you cannot pay. The bankruptcy proceedings free you from overwhelming debts so you can make a fresh start, subject to some restrictions; and make sure your assets are spread out equally amongst all of your creditors. All creditors that you have accrued at the point you apply for your Bankruptcy Order must be included. The effect of bankruptcy is that you are immediately free from debt and under normal circumstances you should not be responsible for any debt included in your bankruptcy.

Anyone can go bankrupt (providing you have debts over £750.00 although you should not consider bankruptcy unless you really believe there are reasons as to why the debt you have cannot be paid back over a reasonable period of time), including individual members of a partnership. There are different insolvency procedures for dealing with companies and for partnerships themselves.

What is the bankruptcy process?
Your petition and also your statement of affairs are prepared by our trained petitions case officers. This will be sent to you in draft for your approval. Following this our staff will book an appropriate time to attend the court hearing. Following being heard at the court and the judge seeing the papers a Bankruptcy Order is made. You are then subject to the bankruptcy restrictions that can last for up to 12 months.

Do not sign any of the documents that are sent to you in final form as these will need to be signed when you enter the court under an oath and as a result need to be witnessed.

How much does it cost to go bankrupt?
Once the fees have been paid to us the only fee left is the £495 (correct at the time of publishing) to the Court, unless it is at the High Court then the fee would be £507. This has to be paid in all cases and without this the Court will not accept your application.

There are circumstances in which this can be reduced and this is if you are in receipt of certain state benefits for example incapacity benefits. The fee is then reduced to £345 (correct at time of publishing).

How long will it be before I receive my Bankruptcy Order?
For those people that are exiting an IVA (Individual Voluntary arrangement) then we aim to have you entered into the protection of a controlled bankruptcy within 4 months from instructing us to deal with your case. All cases vary as to their complexity and therefore this time can vary. We will do our very best to have your Bankruptcy Order through as soon as possible and providing we have all the information that we have requested from you and our fees are paid then we can usually turn around a bankruptcy petition and providing there is a hearing date available for you at Court within 7 days.

Where is the Bankruptcy Order made?
The Bankruptcy Order is made at your local County Court in an area in which you have lived for in the greater part of six months. In most cases this will also be the court that the IVA was ratified if this is the case.

Am I in open Court?
Bankruptcy is dealt with in closed Court. You are not in a Court room with a Judge, you are with a bankruptcy clerk. Normally there is only you and the bankruptcy clerk in the room.

Do I have to see a Judge while I am at Court?
Normally the answer is no, however in some circumstances the Judge may ask to see you. This is again not in open Court and is in the chambers of the Judge. The main reason for having to see the Judge is for clarification purposes.

What happens during the bankruptcy hearing?
You will need to arrive at the Court in plenty of time for the pre arranged appointment time, on arrival at the Court you will have to contact the bankruptcy clerk. They will take you to look through the papers and will also require that you sign an oath to state that all of the information that has been provided is true to your best knowledge and belief. Following this, the papers are sent to the Judge where he will look through these. The clerk will either send you away for a while or they will ask you to wait. The times in which you will be in the court vary from Court to Court. Once the Judge has made the Order, you are then bankrupt. You will either receive a copy of the Bankruptcy Order or this will be sent to your home address.

What happens after Court?
Following the making of the Bankruptcy Order your estate will be transferred to the Official Receiver. The Official Receiver should make contact with you within 48 hours of the Order being made. In some cases the Official Receiver will contact you at the Court. They will make initial contact and ask questions about any assets and bank accounts that you may have and also arrange an interview with you. The main interview that the Official Receiver has with you will be over the telephone. However, in some cases they may require to see you in person.

The Official Receiver will give notice of the Bankruptcy Order to local authorities, utility suppliers, Courts, sheriffs, bailiffs, National Savings and Investments (Premium Bonds), the Land Registry and any relevant professional bodies. Enquiries will also be made of banks; building societies; mortgage, pension and insurance companies; solicitors, landlords and any other persons or organisations who may be able to provide details of any assets or liabilities that you have, or have had, an interest in (either on your own or jointly with others). Third parties will also be asked about any other matters relating to your bankruptcy.

What are my duties as a bankrupt?
When a Bankruptcy Order has been made, you must comply with the Official Receiver’s request to provide information about your financial affairs. The Official Receiver may request that you attend at his or her office for an interview - the Court will give you the address of the Official Receiver. (Note: usually before the interview, you will be sent or given a questionnaire which you should fill in as fully and accurately as possible). If the Official Receiver does not ask that you attend at the office for an interview, you will be sent a letter which will set out what is required of you. Again it is likely that you will be asked to complete a questionnaire.
Your duties are:-
1) Give the Official Receiver a full list of your assets and details of what you owe and to whom (your creditors)
2) Look after and then hand over your assets to the Official Receiver together with all your books, records, bank statements, insurance policies and other papers relating to your property and financial affairs.
3) Tell your Trustee about assets and increases in income you obtain during your bankruptcy. (Note: by law you must inform your Trustee of any property which becomes yours during the bankruptcy. Such property includes lump sum cash payments that you may receive, for example redundancy payments, property or money left in a will).
4) Stop using your bank, building society, credit card and similar accounts straightaway (Unless the Official Receiver confirms that he has no problem with you retaining an account).
5) Not obtain or try to obtain credit of £500 or more from any person without first disclosing the fact that you are bankrupt. However there are legal ways in which you can borrow money. Example: Obtaining a loan from a third party is wholly acceptable providing they are made aware and accept that you are an undischarged bankrupt.
6) Not make payments direct to your creditors.

What happens at the Official Receivers interview?
The Official Receiver will ask details about you assets. He will explain the procedures for certain types of assets such as houses, cars and life policies. He will also ask details about the credit that you have obtained. The sort of questions that he will ask will be:
- When did you obtain that account?
- What was that used for?
- How long has it taken for the debt to accrue?
- Have you carried out any balance transfers on a card- if so how much were they for or what did you do once you did this - did you reuse the card, have you consolidated the debt and if so when, or how much?
They will then ask you if you have sought any advice, if so from where and what did they say, did you follow this advice. Finally they will ask you to explain the causes of your bankruptcy.

Will I lose my bank account?
Following the making of a Bankruptcy Order the Official Receiver will make enquiries into any bank account (s) which you hold, during this time he will need to establish how much money is in the account and whether this is needed for everyday living expenses. The Official Receiver will ask for details of your income and expenses and he will require justification before he can release any funds to you. However, it is a commercial decision between the bank and yourself whether they trade with you. You would have to ask the bank whether they would be willing to allow you to keep your account.

Please note that if you have or do opt to take part in our Re-Start programme, your managed bank account under Re-Start should not be affected by bankruptcy.

If I am currently in an IVA, what will happen when I cancel my IVA payments?
No doubt you will be contacted by your IVA company and they will probably try hard to get you to change your mind. If you are ever in any doubt about any contact you receive please do not hesitate to contact us and we will talk through the issues with you. Remember that an IVA company could stand to lose around £5,000 to £10,000 in fees if you do not proceed with your IVA and they will be keen to try to protect against this potential loss.

Can I still go bankrupt even though I am in a contract with my IVA?
Yes you can. You are entitled by law to cancel your IVA at any time. We are on hand to provide you with the assistance and help for any problems.

What will happen to my home?
If you own a home either solely or jointly the interest in the property mortgaged or otherwise will form part of your bankruptcy estate. Your home may have to be sold to pay off part of your debt. The Official Receiver will look into the value of the property and any loans secured on it. If the property is a family home then the Official Receiver will allow the proceedings to be halted in the first year whilst other housing arrangements are sought. If the property is jointly owned and your partner is solvent then there is a possibility if there is little or no equity in the home that the Trustee’s interest in the property may be purchased back. If this did apply to you then a nominal charge of £1 would usually be made plus costs to the Trustee in Bankruptcy for dealing with this which would have to be established at the time. This is called obtaining the beneficial interest.

Can bailiffs come to my house?
The only reason that a bailiff would come round would be because they were not aware that you have a Bankruptcy Order against you. Your creditors will not immediately know about your bankruptcy as it can take some time for the information to reach them and for their files to be adjusted accordingly. Once you show them a copy of your Order or tell your creditors or collection agents your bankruptcy number from the Court they will usually then leave you in peace. If they do not, you are advised to speak with the Police to explain the position and seek to have them removed for harassment. If in doubt, please telephone us for further advice or information on this point.

Will going bankrupt affect my address?
If someone carries out a credit check against your name at the address from which you go bankrupt then yes this will usually show up. If other people live at your address they should not be affected by your bankruptcy as the credit search is carried out against the individual at an address.

What will happen to my pension?
Since May 2000 a pension does not normally form part of the bankruptcy estate providing the pension is Inland Revenue approved. If in doubt, please seek advice from the financial advisor or pension provider.

What will happen to my life policy?
Life policies form an asset in the bankruptcy estate and on the date of the Order the beneficial interest in this policy. As a result the Trustee in Bankruptcy may sell or surrender any policy with a value for the benefit of the creditors. However, you do have an option to purchase this interest back from them, and this would be for a nominal fee. This would be discussed at the Official Receivers interview.

How long does bankruptcy last?
Under new bankruptcy laws introduced on 1st April 2004 the statutory period for a bankruptcy was reduced from 3 years to 12 months. During the 12 months you are subject to the restrictions of the bankruptcy. Also introduced in 2004 was the chance for early discharge, this is given when there is no investigation needed further into your affairs and where you have co operated fully with the Official Receiver. This is given at his discretion and therefore you could be discharged in 6-12 months.

Will I have to pay anything to my creditors while I am bankrupt?
During the period in which you are an un-discharged bankrupt you may be asked to make payments to your creditors by way of an income payments agreement (IPA). This is a flexible agreement in which you pay a percentage of your surplus income back to the Official Receiver for the benefit of your creditors. This is worked by taking your essential expenditure and also further expenses allowed in bankruptcy (which may not be permitted in an IVA). From this, if there is a surplus of more than £100 per month the Official Receiver may take a percentage of this. The percentage they take depends on the size of the surplus - the more surplus you have the more they are likely to take. The Official Receiver however does not usually take more than 70% at the most.

If you are employed at the time you are made bankrupt you will also notice that your tax code will change to a “NT” code. As a result of this you will be paid your gross pay and not your net pay minus tax. The reason behind this is that the Official Receiver and Revenue and Customs have agreed that during the period of the financial year in which you are made bankrupt, you should make the payment of the tax to the Official Receiver; this is then paid to your creditors. There will be an agreement to pay this to the Official Receivers agents. It is vital therefore that you do NOT spend this extra money as it will have to be repaid.

What happens if I earn more or less money and I am subject to an IPA?
If your income changes during the time in which you are subject to an IPA, then you will need to inform the Official Receiver. As the title says this is an agreement and as a result this can be changed. If your income increases you maybe required to make more payments to the Official Receiver, however if this income reduces the IPA can be reduced or in certain circumstances cancelled.

Is my employer informed?
In most cases your employer need not be informed; however certain jobs hold bankruptcy restrictions and would advise that you obtain information from your contract or HR department to whether a bankruptcy will affect your employment.