What is bankruptcy?
Bankruptcy is a form of insolvency. A person (or business) may be declared bankrupt if they owe more money than they can afford to repay.
If you go bankrupt, you will no longer have to deal with the people or organisations you owe money to. Instead, a third party known as the official receiver will take control of your assets and property and administer appropriate payments on your behalf. This may mean that the things you own are sold - including your car and your home.
The state of bankruptcy normally lasts for a year, at which point you are discharged from bankruptcy and your outstanding debts are written off.
Can I declare myself bankrupt?
Yes. You can apply to go bankrupt yourself.
In other circumstances, an organisation you owe money to may apply to have you declared bankrupt in an attempt to recover the money you owe them.
Before beginning proceedings to declare yourself bankrupt, it is vital to seek advice on your financial situation from a debt specialist and look into any alternative debt solutions that might be more appropriate for you.
How much does it cost to go bankrupt?
In order to apply for bankruptcy, you will need to pay a court fee of £180 and a deposit of £525. The total cost of these combined charges is £705.
If you’re unable to meet the cost of the court fee and have suffered exceptional financial difficulties, or are in receipt of certain benefits, it is possible that this proportion of your bankruptcy costs will be reduced or waived.
However, the deposit you are required to pay when you petition for bankruptcy cannot be reduced or waived.
The bankruptcy process is broadly similar in Scotland and Northern Ireland, though there are some procedural differences. In Northern Ireland, for example, you pay a deposit of £525, a court fee of £115 and a £7 solicitor’s fee. Bankruptcies are also only heard in the High Court in Belfast. Visit www.nidirect.gov.uk for more information.
In Scotland, you must apply to the Accountant in Bankruptcy if you have decided that bankruptcy, sometimes known as sequestration, is the best option. You must also owe £1,500 or more, and the application fee is £200. In addition, you must be ‘apparently insolvent’ or one of your creditors must agree.
There are more details on the website of the Accountant in Bankruptcy (www.aib.gov.uk).
Before beginning proceedings to declare yourself bankrupt, it is vital to seek advice on your financial situation from a debt specialist
Will going bankrupt now affect me in the future?
During the period of your bankruptcy you will be bound by a set of restrictions that prevent you from getting credit of more than £500, acting as a director or involving yourself in setting up a company, running a business without disclosing your bankruptcy or acting as an insolvency practitioner.
However, even after you are discharged from bankruptcy (which usually happens after a year), you may feel the effects of having been bankrupt.
You could lose your home and car when you go bankrupt - and this might affect you for years to come, particularly because your ability to borrow money after being bankrupt will be seriously affected.
Even privately renting a property may prove challenging if you have formerly been bankrupt, as you are likely to have to declare this when your landlord’s agent checks your credit history.
The fact that you’ve been bankrupt will remain on your credit file for six years, so you’ll probably find getting a loan, mortgage or credit card almost impossible during that time.
You may also find that, as person who has previously been bankrupt, you are unable to do certain jobs.
Where can I get advice on going bankrupt?
Whoever you choose to talk to, it’s very important to seek expert help with your situation before making a decision on whether or not to go bankrupt.
Are there other options I could consider?
Yes. Alternatives to bankruptcy include Debt Relief Orders (DROs), Debt Management Plans (DMPs) and Individual Voluntary Arrangements (IVAs).
One of these may be appropriate for you, so it’s important to understand what they are and how they work before plumping for bankruptcy instead.