Bankruptcy

Bankruptcy is a legal tool that is used to sort out financial problems for individuals. You can either declare yourself bankrupt or you can be made bankrupt by creditors if you do not pay them back money that you owe.

To make your own bankruptcy petition you need to make a debtor’s bankruptcy petition to your local county court. There are charges associated with making a petition (which may be waived in certain cases) and with appointing an Official Receiver to manage your case (which will not be waived). Creditors can apply to make you bankrupt if you have an unsecured debt with them that totals over £750.

In either case, if you are declared bankrupt, then the court will use any relevant money and assets that you have to pay off some or all of the money you owe. This will be done by the Official Receiver if you have no assets to speak of and by an Insolvency Practitioner if you do have assets. This will usually go on for a year at which point your bankruptcy will normally be discharged (even if you haven’t paid back everything that you owe).

Once you have been declared bankrupt the people to whom you owe money cannot chase you for repayment any longer and they have to accept the terms of the court. You have to work with the person who is managing your bankruptcy to let them know how much money and assets you have and you will have to agree to their repayment schedule and to the sale of any assets that they specify. You will also have to:

Keep the court representative informed of any changes to your financial situation.
Commit to not using credit cards and bank/building society accounts (although you may be allowed a basic bank account).
Agree not to apply for a credit agreement that totals over £500 unless you tell the credit company that you have been declared bankrupt.
Agree not to work as a director of a company.
Agree not to set up a company without the court’s permission.
Commit to not working in certain professions (i.e. as an accountant or lawyer).

Declaring yourself bankrupt may seem a quick and easy way of clearing your debts but it will have a negative impact on your credit rating so this isn’t a route that should be taken without specialist advice.