In the UK, the definition of a 'Bankrupt' is "an insolvent person" or "a person unable to repay their debts".
There are principally two ways in which you can become subject to a Bankruptcy Order, you can either be made bankrupt by one of your creditors, or you can petition for your own bankruptcy.
A creditor can not bankrupt you unless you owe them £5,000 or more and you can’t repay your debt. If a creditor petitions for your bankruptcy they will be required to pay the bankruptcy fees.
People living in England and Wales who choose to petition for their own bankruptcy must pay the bankruptcy fees themselves. The fees come in two main parts, there is an adjudicator fee of £130 and the Official Receiver's deposit which is £550.
Bankruptcy is not a punishment. It is, more accurately, a legal process designed to provide the Court and her representatives the necessary structure needed to deal with a person’s inability to repay their debts.
In essence, the control over repaying the debts is removed from a bankrupt and, instead, passed to a court representative called the Official Receiver. Their task is to ensure that a bankrupt’s assets, or 'estate', are valued and, where necessary, liquidated, with the bankrupt’s income also being assessed, in order to ensure the bankrupt repays as much of their debt as possible.
If, through the course of their investigations, the Official Receiver believes a bankrupt can afford to make monthly repayments, then an Income Payment Order (IPO) can be imposed and, if necessary, deductions can be taken directly from a bankrupt’s income via an Attachment of Earnings Order if they fail to comply.
A Bankruptcy Order will normally last for 12 months, after which the bankrupt will be discharged and the outstanding balances on their debts will be written-off. However, payments into an IPO normally last up to 3 years from the date the IPO began.
Whilst subject of a Bankruptcy Order, a bankrupt is restricted from a number of activities and cannot apply for any credit greater than £500 without notifying the potential lender that they are an undischarged bankrupt.
These restrictions can be extended for up to 15 years in cases where the Official Receiver believes there to be good reason, such as fraudulent activities, gambling debts or just irresponsible spending. This is done through a Bankruptcy Restriction Order (BRO).
Since April 2016, changes to the bankruptcy process in England and Wales now mean it is no longer a requirement for a bankruptcy petition to be made through court, but rather through an new online process.
People in Northern Ireland, however, will continue with their current system until November 2016, after which the new system is expected to be extended. Until then, they will need to attend court to petition and the costs remain unchanged, with bankruptcy fees of a £115 court fee, £550 for the bankruptcy deposit and £7 solicitor costs.
Other points to be aware of include.:
- Bankruptcy fees must be paid upfront.
- Your name will be published in the London Gazette.
- Certain professions will prohibit bankruptcy as a solution.
- Bankruptcy will have a severe impact on your ability to obtain credit for a minimum of 6 years.
- Your name will be placed on the Insolvency Register which is a public record.
Whilst these points are not in themselves reasons to avoid declaring yourself bankrupt, for many they add to the overall perceived stigma that bankruptcy carries.
And whilst Bankruptcy is undoubtedly needed as a debt solution, for many people it is viewed as too punitive for their personal situation.
Many people do find the opportunity of reaching an amicable settlement with their creditors through an IVA, which allows them to repay their creditors as much as possible at an affordable rate for a fixed term, as much more appropriate.
So if you would like to discuss your circumstances with an IVA expert, just call our helpline on 0800 856 0569 now. All our advisers have the ability to explain more clearly the differences between Bankruptcy and an IVA and how each would differ when applied to your personal circumstances.