A Brief Guide to Bankruptcy

How can I be declared bankrupt?

You can be declared bankrupt by a bankruptcy petition being presented to the court. This can be presented either by you (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).

Your Home

If you own your home, whether freehold or leasehold, solely or jointly, mortgaged or otherwise, your interest in the home 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.

Any other assets

You will no longer control your assets. You can keep essential household items, vehicles and tools of trade you need to use personally in your employment unless their individual value is more than the cost of a reasonable replacement. All these items must be disclosed to the Official Receiver who will then decide whether you can keep them. The Official Receiver/trustee will 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 dispose of them and use the money to pay the fees, costs and expenses of the bankruptcy and then your creditors. If appointed, the insolvency practitioner’s fees for acting as a trustee are also paid from the money raised by selling your assets. The trustee may apply to the court for an order restoring property to him or her if you disposed of it in a way which was unfair to your creditors (for example, if before bankruptcy you had transferred property to a relative for less than its worth). The trustee may claim property which you obtain or which passes to you (for example, under a will) while you are bankrupt.

Fees and costs

You will have to pay £325 deposit plus £150 as a court fee, payable in cash when you submit your form to the court. Asset realisations from your estate, together with any contributions from your income, will fund the trustee’s fees and expenses, and will be deducted prior to any dividend payment to creditors.

The principal advantages of bankruptcy are:

• Your creditors will no longer be able to pursue you or take action against you to recover what you owe
• You will not have to make further payments to your creditors
• You may expect to be discharged after 12 months

There are, however, some disadvantages:

• If you own any valuable assets, including endowment policies, these will usually have to be realised
• If you are in paid employment you may have to make a regular contribution
• If you acquire any money or property after the date of your bankruptcy and before the date of your discharge, you will have to surrender these to your Trustee
• Your bankruptcy will be advertised in the London Gazette and in a local or national newspaper and may be noted by credit referencing agencies.
• You may have difficulties in obtaining credit after your discharge
• If you are self-employed, your business may be closed down and any employees dismissed