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Applying for Bankruptcy

Applying for Bankruptcy

If you have finally made the decision to go bankrupt then let us help you make sure that everything goes smoothly. You can use our Bankruptcy Support Programme to help prepare your Petitions and other paperwork as well as help in dealings with the Court and during subsequent meetings you may have. As Insolvency Practitioners we often deal directly with the courts and officials who administer bankruptcies on many matters and will provide you with all the knowledge you need.

Included below are some of the questions we are often asked about the process and implications of bankruptcy.

What is bankruptcy?
How are you made bankrupt?
Who will deal with your case?
What are your duties as a bankrupt?
How will bankruptcy legally affect you?
What are the restrictions on a bankrupt?
Becoming free from bankruptcy
Bankruptcy Restriction Orders and Undertakings
How much does bankruptcy cost?

What is bankruptcy?

An application for a Personal Bankruptcy is perhaps the ultimate way of dealing with debts you cannot pay. Bankruptcy will immediately:

  • Free you from overwhelming debts so you can make a fresh start, subject to some restrictions; and

  • Ensure that any assets you may have are shared out fairly among your creditors.

  • Anyone who owes more than £750 can go bankrupt although the debts are usually significantly higher. There are different insolvency procedures for dealing with companies and for partnerships themselves (usually called Liquidation). There are also some differences relating to an application for bankruptcy in Scotland (also called Sequestration).

    How are you made bankrupt?

    Bankruptcies are usually dealt with initially via your local county court and then through a regional centre headed by an Official Receiver. The court makes a bankruptcy order only after a bankruptcy petition has been presented to it. The petition is usually presented either:

  • by yourself (debtor's petition); or

  • by one or more creditors who are owed at least £750 by you and that amount is unsecured (creditor's petition).

  • If you are applying for your own bankruptcy then you will have to complete the petition yourself – our Bankruptcy Support Programme can complete the petition for you.

    Do NOT ignore any creditor threats of bankruptcy or court documentation under a creditors petition because a bankruptcy order can still be made even if you refuse to acknowledge the proceedings or refuse to agree to them.

    You must co-operate fully once bankruptcy proceedings have begun. If you dispute a creditor's attempt to make you bankrupt, you should try and reach a settlement before the bankruptcy petition is due to be heard or ask us for help as soon as possible. Trying to do so after the bankruptcy order has been made can be both difficult and expensive but we are experts in getting bankruptcies stopped in these circumstances.

    Who will deal with your case? Either:

    1. The Official Receiver

    An Official Receiver is appointed by the Secretary of State and is an officer of the court. The Official Receiver has responsibility for administering your bankruptcy and protecting your assets from the date of the bankruptcy order. He or she will also act as trustee of your bankruptcy estate unless an insolvency practitioner is appointed.

    The Official Receiver is responsible for looking into your financial affairs for the period before (up to 5 years) and during (minimum 12 months) your bankruptcy. He or she may have to report back to the court and has to report to your creditors.

    The Official Receiver must also notify all relevant bodies of your bankruptcy - 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). Any relevant third party may also be asked about any other matters relating to your bankruptcy that the Official Receiver thinks fit e.g. your employer.

    2. An insolvency practitioner

    Insolvency practitioners are individuals who are regulated and specialise in insolvency work. An insolvency practitioner, must be authorised by either the Department of Trade and Industry or the appropriate professional body, can be appointed trustee instead of the Official Receiver. He or she is then responsible for disposing of your assets and making payments to your creditors.

    What are your duties as a bankrupt?

    Once the bankruptcy order has been made, you must:

    Comply with the Official Receiver's request to provide information about your financial affairs. You will be advised of all the materials required under our Bankruptcy Support Programme The Official Receiver may request that you attend at his or her office for an interview or undertake a telephone interview - the Court will give you the address of the Official Receiver. (Note: usually before the interview, you will be sent or given another questionnaire which you should fill in as fully and accurately as possible.)

    If the Official Receiver does not ask you to attend the court 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.

    2. Provide the Official Receiver with a full list of your assets and details of what you owe and to whom (your creditors); the information is normally included in your original bankruptcy petition which you will present at the court.

    3. Look after and then hand over your assets (such as a car perhaps) to the Official Receiver together with all your books, records, bank statements, insurance policies and other papers relating to your property and financial affairs;

    4. Tell your trustee about any assets and any 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 and property or money left to you in a will);

    5. Stop using your bank, building society, credit card and similar accounts straightaway; these accounts are normally closed down by the bank upon confirmation of your bankruptcy order.

    6. Not obtain credit of £500 or more from any person without first disclosing the fact that you are bankrupt;

    7. No longer to make payments direct to your creditors.

    8. You may also be required to go to court and explain all the circumstances concerning your debts and how the amounts have built up.

    9. Your books and papers will normally be destroyed after your trustee has finished with them. However, you can have them back, provided they have not already been destroyed, if the court annuls your bankruptcy.

    How will bankruptcy affect you?

    a. In relation to your creditors

    Once you become bankrupt, you MUST STOP making payments direct to your creditors. Creditors must make a claim under your bankruptcy. They can no longer ask you directly for payment; if you receive any requests, pass them immediately to your trustee to deal with and tell the creditor that you are bankrupt.

    There are some types of creditor that you MUST continue to pay.

    The main ones are:

  • Secured creditors, such as creditors who have a mortgage or charge on your home Note: If mortgage payments are not made, the lender may sell your home.

  • Non-provable debts, such as court fines and other obligations arising under an order made in family proceedings or under a maintenance assessment made under the Child Support Act 1991. Non-provable debts are not included in the bankruptcy proceedings and you are still responsible for paying off such debts.

  • Benefit overpayments, where the Department for Work and Pensions (DWP) can recover any benefit overpayments from any further benefits you receive.

  • Student loans, since 1 September 2004 all outstanding student loans cannot be claimed in bankruptcy. They remain the responsibility of the (former) student to repay within the terms of the loan arrangement.

  • Suppliers of services to your home (gas, electricity, water and telephone) may not demand from you payment of bills in your name which are unpaid at the date of the bankruptcy order. But they may ask you for a deposit towards payment for further supplies or could arrange for the accounts to be transferred into the name of your spouse or partner. You must pay continuing commitments such as rent (if you rent your home), together with any debts you incur after the bankruptcy.

  • b. Payments to unsecured creditors

    The Official Receiver will tell your creditors that you are now bankrupt. He or she may then either act as the trustee or, if the case is particularly complex, may arrange a meeting of creditors for them to choose an insolvency practitioner to be the trustee. This tends to happen if you appear to have significant assets.

    The trustee will tell the creditors how much money is likely to be shared out in the bankruptcy. Creditors then have to make their formal claims. The cost of the bankruptcy proceedings are paid first from any money that becomes available. The costs include fees that the Official Receiver or the insolvency practitioner charges for administering your case.

    If you were in business then claims from your employees (if any) may be preferential and are paid next, along with any other preferential debts. Finally, other creditors are paid, together with interest on all debts, as far as there are funds available from the sale of your assets. If there is a surplus, it will be returned to you. You would then be able to apply to the court to have your bankruptcy (cancelled).

    When your trustee makes a payment to your creditors, he may place an advertisement about your bankruptcy in a local newspaper asking creditors to submit their claims. Depending on how long it takes your trustee to deal with your assets, this advertisement may appear several years after the bankruptcy order.

    c. Your assets

    You will no longer legally control your share of any assets.

    You are usually allowed to keep the following items unless their individual value is more than the cost of a reasonable replacement:

  • Tools, books, vehicles and other items of equipment which you need to use personally in your employment, business or vocation;

  • Clothing, bedding, furniture, household equipment and other basic items you and your family need in the home.

  • All these items must be disclosed to the Official Receiver who will then decide whether you can can keep them.

  • The Official Receiver/trustee will officially take control of all your other assets on the making of the bankruptcy order. He or she, or any insolvency practitioner who is appointed as trustee, will then sell them and use any money to pay the fees, costs and expenses of the bankruptcy and then your creditors. If appointed, the insolvency practitioner's fees for acting a trustee are also paid from the money raised by selling your assets.

    It is important to note that the trustee has the power to apply to the court for an order restoring property to him or her if you disposed of it prior to your bankruptcy for less than the asset was worth, for instance selling a car or transferring ownership of a property for a nominal fee to a friend or relative. The Trustee has the power to go back up to FIVE years before your bankruptcy. The trustee can also make a claim on any property which you obtain or which passes to you (for example, under a will) while your bankruptcy is still in place

    If you have made a claim against another person through court proceedings such as a PPI reclaim or personal injury, or you think you may have a claim (a right of action) against another person, the claim may be an asset in the bankruptcy.

    d. What happens to your home

    If you own your home then your interest will form part of your estate which will be dealt with by your trustee. The home may have to be sold to go towards paying your debts. In practical terms this means that if there is any equity in the property then the amount which is deemed to be your share of that equity can be used to help pay for your bankruptcy. The Official Receiver currently has THREE years to decide whether to make a claim against any property interest you may have.

    If a partner or children are living with you, it may be possible for any sale in the bankruptcy to be put off until after the end of the first year of your bankruptcy. This gives time for other housing arrangements to be made.

    Your partner or a relative or friend may be able to buy your interest in your home from the trustee, even if the interest is very small, worth nothing or you owe more on the house than it is currently worth.. Your partner or any other interested party should be encouraged to take legal advice about the home as soon as possible.

    If the trustee cannot, for the time being, sell your home, he or she may obtain a charging order on your interest in it, but only if that interest is worth more than £1,000. If a charging order is obtained, your interest in the property will be returned to you, but the legal charge over your interest will remain. The amount covered by the legal charge will be the total value of your interest in the property and this sum must be paid from your share of the proceeds when you sell the property.

    Until your interest in the home is sold, or until the trustee obtains a charging order over it, that interest will continue to belong to the trustee but only for a certain period, usually 3 years, and will include any increase in its value. Therefore, the benefit of any increase in value will go to the trustee to pay your debts, even if the home is sold some time after you have been discharged from bankruptcy: the increase in the value will not be yours.

    If, after a certain time, usually 3 years, your trustee has not sold or obtained a charge over your interest in the property, or applied for an order of possession or obtained a charging order against the property, or you have not come to any arrangement with your trustee about that interest, it may be returned to you.

    Matters relating to your property are one of them most critical areas to discuss ahead of you applying for bankruptcy. Please contact us to fully understand your rights in this area on 0800 043 50 43

    e. Your pension

    A trustee cannot usually claim a "normal "pension as an asset if your bankruptcy petition was presented on or after 29 May 2000, as long as the pension scheme has been approved by the Inland Revenue. The main exceptions to this are where the pension "pot" is of an excessively value compared to your bankruptcy e.g. you have been paying high amounts into a pension and not paying your other creditors.

    Any pension amounts you are receiving, or become entitled to do so before you are discharged, are treated as income for the purposes of an Income Payments Order (IPO) which is the amount you would have to pay each month for up to THREE years under your bankruptcy.

    h. Your business

    If you are self-employed, your business could be closed down and any employees may have to be dismissed. Any business assets could be claimed by the trustee unless they are exempt and you will have to give the Official Receiver all your accounting records. You are still responsible for completing all tax and VAT returns even though any outstanding liabilities would form part of your bankruptcy.

    There is nothing to prevent you from being self-employed while a bankrupt. You can start to trade again, subject to restrictions. You will be responsible for keeping accounting records for this business and for dealing with the tax and VAT requirements for the new business. You will need to register again for VAT if you meet the registration requirements. You should not continue to use your pre-bankruptcy VAT registration number.

    i. Your Income

    Your trustee may apply to court for an Income Payments Order (IPO), which requires you to make regular monthly contributions towards the bankruptcy debts from your income for up to THREE years. The court will not make an IPO if it would leave you without enough income to meet the reasonable domestic needs of you and your family. If you have an increase or decrease in income, the IPO can be changed. In certain circumstances this could mean that your employer may become aware of your bankruptcy

    IPO payments continue for a maximum of THREE years from the date the order is made by the court and may continue after you have been discharged from your bankruptcy. Or you may enter into a written agreement with your trustee, called an income payments agreement (IPA), to pay a certain amount of your income to the trustee for an agreed period, which cannot be longer than 3 years. There are no fixed guidelines on IPOs or IPAs - each case is assessed individually.

    Income Payments Orders are a very complex part of the bankruptcy process. You should let us advise you on what the Court are likely to allow you to retain and how much they will want from you. We will ensure that you register for the maximum entitlement. Contact us on 0800 043 50 43 to discuss.

    What are the restrictions on a bankrupt?

    The following are criminal offences for an undischarged bankrupt:

    a. Obtaining credit of £500 or more either alone or jointly with any another person without disclosing your bankruptcy. (Note: this is not just borrowing money - it includes your getting credit as a result of a statement or conduct which is designed to get credit, even though you have not made a specific agreement for it.

    b. Ordering goods without asking for credit and then failing to pay for them when they are delivered);

    C. Carrying on business (directly or indirectly) in a different name from that in which you were made bankrupt, without telling all those with whom you do business the name in which you were made bankrupt;

    d. Being concerned (directly or indirectly) in promoting, forming or managing a limited company, or acting as a company director, without the court's permission, whether formally appointed as a director or not.

    e. You may not hold certain public offices. You may not hold office as a trustee of a charity or a pension fund.

    After the bankruptcy order has been made, you may then open a new bank or building society account but you must tell them you are bankrupt; they may impose conditions and limitations. You should ensure you do not obtain overdraft facilities without informing the bank that you are bankrupt, or write cheques which are likely to be dishonoured.

    Becoming free from bankruptcy

    a. How long does bankruptcy last?

    You will normally be automatically freed from bankruptcy (known as "discharged") after a maximum of 12 months provided that you have met all of your obligations required under the bankruptcy order. This period may be shorter if the Official Receiver concludes his enquiries into your affairs and files a notice in court. However if you refuse to cooperate with the court then you can remain undischarged until you actually comply.

    b. Debts

    Discharge releases you from most of the debts you owed at the date of the bankruptcy order. Exceptions include debts arising from fraud and any claims which cannot be made in the bankruptcy itself. You will only be released from a liability to pay damages for personal injuries to any person if the court thinks fit.

    Bankruptcy restrictions orders (BRO) and undertakings

    If, during his/her enquiries into your affairs, the Official Receiver decides that you have been dishonest either before or during the bankruptcy or that you are otherwise to blame for your position, he/she may apply to the court for a Bankruptcy Restrictions Order. The court may make an order against you for between 2 and 15 years and this order will mean that you continue to be subject to the restrictions of bankruptcy. You may give a bankruptcy restrictions undertaking which will have the same effect as an order, but will mean that the matter does not go to court.

    Debts incurred after you have been made bankrupt

    Bankruptcy deals with your debts at the date of the bankruptcy order. After that date you should manage your finances more carefully. If you incur new debts this could result in a further bankruptcy order or prosecution if, when you incurred the debts, you did not disclose that you were bankrupt.

    How much does bankruptcy cost?

    The current costs of an application for personal bankruptcy in England, Wales and N Ireland have increased dramatically over the last few years. The current cost of a Debtors petition (June 2012) is £700 per person. The fee is made up of two elements; a court fee of £175 and an Official Receivers deposit of £525. (the court fee can be waived in certain cases of extreme financial hardship but this is very much up to the individual court).

    Most people applying for personal bankruptcy have very little money to actually apply for bankruptcy. Let us show you how we can help keep your creditors at bay while you save up the bankruptcy fees. Contact us on 0800 043 50 43

    The information contained within this section has been prepared with the help of the Governments Insolvency Service latest guidelines.

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