Bankruptcy FAQ

Q1. Who should go bankrupt?

A This is for people who have no alternatives and where all other options have been exhausted. Non-homeowners are normally not affected as drastically by bankruptcy and nor those whose job is not at risk, not worried about having poor credit rating or having their name in the papers. Non-homeowners living on State Benefits or a pension would probably be discharged from bankruptcy in less than one year and would probably not be subject to an Income Payment Order.

Q2. Are there any debts that bankruptcy does not cover?

A Debts are divided into ‘dischargeable debts' which are covered by bankruptcy and ‘non-dischargeable debts' which are not.

A general guide is as follows for dischargeable debts:-

• Inland Revenue and VAT Bills
• Unsecured loans
• Credit card debts
• Legal, Medical and Accounting bills
• Unpaid bills, including catalogue accounts and store cards
• County Court Judgments

Non-dischargeable debts include:-

• Debts to the Student Loans Company
• Fines and penalties
• Secured debts and loans with collateral
• CSA claims for child support and other family/domestic legal liabilities
• Most educational loans which fall outside of the Insolvency Act 1986

Q3. How long will bankruptcy last?

A Although bankruptcy usually lasts for just one year the length of your bankruptcy will lie at the discretion of the Official Receiver. He/she may decide to conclude the case early if your main income is State Benefits or a Pension, if your debts and expenses have been fully paid, or if the order shouldn't have been made in the first place. However if you fail to meet the bankruptcy terms, if you have been bankrupt previously, or if you have engaged in fraud, gambling or other related activities the Official Receiver may increase the duration of your Bankruptcy Order for up to ten years.

Q4. Can I go bankrupt more than once?

A Yes, but if you are declaring bankruptcy for the second time, the period of your Bankruptcy Order is likely to be extended and your Income Payment Order may also.

Q5. Can I have a bank account if I go bankrupt?

A You are most likely to hold a basic account and not a current account which usually means no lending facilities, cheque book or debit card. Not all banks and building societies will offer this account to people who are bankrupt.

Q6. What costs are involved in going bankrupt?

A To go bankrupt voluntarily there is a one off charge of £460 - £500 in court fees. If you have assistance in preparing the forms then you may have to pay for this as well. In addition to this the Official Receiver will assess your financial position and you may be required to contribute monthly payments to the court in the form of an Income Payment Order. The amount you pay each month will be linked to the amount you can afford. Your Income Payment Order will normally last for 3 years and is unlikely to run for longer unless the Official Receiver feels there is a reason to prolong it such as evidence of fraud or a previous bankruptcy.

Q7. How does bankruptcy affect my credit rating?

A During the bankruptcy period itself (normally 12 months), you will find it extremely difficult to get a mortgage or any form of unsecured credit. After you are discharged it will become increasingly possible to borrow again. Bankruptcy will remain on your credit file for 6 years so in this period it will be difficult to obtain unsecured credit without being subject to increased interest. You will be unable to obtain secured credit at normal rates.

Q8. What happens if I come into money?

A If you receive a lump sum during the 12 months of your bankruptcy, this money must be declared to the court and may be seized for the purposes of paying your creditors. Once you have been discharged you are allowed to keep any lump sums you receive even though your Income Payment Order may still run for a further 2 years.

Q9. What will happen to my pension fund?

A In most cases your pension fund would remain untouched by the court but you may be required to suspend payments into the fund for the duration of your bankruptcy.

Q10. Will somebody knock on my door and take away everything I own?

A No – the only assets that may be seized are houses, cars worth more than £1500 and household items that are not seen to be reasonable. An unreasonable item is seen to be if you sell an expensive item and receive enough money to buy a cheaper replacement with a substantial amount left over, it would be disposed of and proceeds contributed towards your bankruptcy.

Q11. What happens of my property is in joint names?

A If you have a joint mortgage, your share in the title would be seized regardless of your partner's financial situation. This could lead to a forced sale which might be unavoidable, however the court will only be able to claim your share of the equity and the remainder returned to its rightful owner. Your partner would be able to make an offer to buy your share of the equity and this money would be offered to the Official Receiver instead.

Q12. What will happen if I have no equity in my property?

A If your house contains no equity at all the Official Receiver will take possession of the title to the house (see Q11) but may be prepared to return it you at a nominal value. If this has happened, approach the Official Receiver and offer to buy back the title to the property for a nominal sum of £1 (plus the cost of solicitor's fees). If you fail to do so, the Official Receiver will remain in control of the property for 3 years. If the property has acquired value during that time you would stand to lose that money. However if the Official Receiver does not sell the property within 3 years, the Enterprise Act states that the property would be returned to you.

Q13. Can I save my assets by signing them over into somebody else's name?

A No – the court will check to see if you have given away any major assets or sold them for less that their true value over the last 5 years. If you have done so the asset may be seized by the court regardless of who is in control of it at that time.

Q14. Can I borrow extra money to clear someone else's debts and then go bankrupt myself?

A No – the court will view this as giving away assets (as above). The money will be sought out by the court and seized and the person you helped will be back where they started.

Q15. Will my partner be affected by my bankruptcy?

A In terms of their job and other aspects of life – no. If your financial affairs are separate, your partner will not be affected by your bankruptcy. There may be consequences on your partner's credit rating due to information creeping from one person's credit file to another's especially if you share the same address. To prevent this you can contact the UK credit file companies Experian and Equifax and ask them to ‘create a disassociation'. This means that your information will be removed from their file and their information removed from yours. To do this you must give Experian and Equifax your full names and dates of birth as well as details of your relationship and any shared addresses.

Q16. What to do next?

A Once you have decided that bankruptcy is the right option for you, you will need to fill a bankruptcy form and bankruptcy petition. These forms along with the fees payable at the time are submitted to court. If the District Judge believes that you are insolvent and bankruptcy is the right option for you, a Bankruptcy Order can be issued on the same day. After this you will meet with a member of the Official Receiver's office to discuss the terms and details of your Bankruptcy Order, including the length of the bankruptcy, the details of the Income Payment Order and the issues involved with asset liquidation.

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