UpdateFrom October 2015, the bankruptcy threshold was increased from £750 to £5,000.
If you are unable to pay your debts and have no prospect of dealing with them in any other way, you can file your own bankruptcy petition. You can do this if you owe at least £5,000, however, it is only worth considering if your debts are much larger than that. When deciding on a course of action, you should take into account the nature of your debts rather than just the amount.
Before opting for bankruptcy, you should look at all the alternatives, such as:
For example, while you are undischarged, you cannot:
- practice as a Charted Accountant;
- practice as a Lawyer;
- act as a Justice of the peace
- become an member of parliament;
- become a member of a local authority; or
- act as a company director.
If you have made up your mind to go down the bankruptcy route, you need to apply to the court with the relevant forms. Not all courts deal with bankruptcy, you must use the one that’s nearest to you. You can search online for your nearest court here: court finder. Make sure you select ‘bankruptcy’ from the ‘area of law’ drop down list. Enter your postcode in the box and click ‘Search’.
If you are in London, it is the High Court:
Royal Courts of Justice
Tel: 020 7947 6000
Tel: 020 7947 6441 (Bankruptcy enquiries)
Keep a copy of your completed petition and statement of affairs forms -you may need them later at the interview with the Official Receiver. You will need to go to court to swear an affidavit. This means you swear to the court you have told the truth in the petition and statement of affairs forms. You’ll need to take the forms with you, along with two copies, the fee and the deposit.
There is a deposit of £525 for managing your bankruptcy and £180 for court costs. You can pay using cash, postal orders or a building society, bank or solicitor’s cheque made payable to Her Majesty’s Courts & Tribunal Service. You will usually have to pay this when you hand your forms in to the court. The court will sometimes accept payment by cheque from a third party if someone has agreed to make the payment for you.
Court fee remission for benefit recipients
Everyone has to pay the deposit but the court fee could be waived if you receive:
Fee remission if you are on a low income
Help with paying the deposit
There are some charities and other organisations that may be able to offer help with paying the deposit.
Bankruptcy Restrictions Undertaking (BRU)
You will usually be discharged from bankruptcy after one year, however, if the Official Receiver thinks you have been dishonest or have concealed information, for example, you could be asked to agree to a Bankruptcy Restrictions Undertaking (BRU). This could be because you were guilty of:
Being bankrupt for a second time in six years is also a matter to be considered but is not, in itself, sufficient reason to apply for a BRO.
Just because someone has done one of these things it does not mean that they will be subject to a BRO, but it does mean that the official receiver needs to look at the conduct and decide whether the public needs protecting from that person. This will depend on the extent to which creditors have lost out, how aware the bankrupt was of their situation at the time, and the likelihood of them doing it again.
If you don’t agree to the BRU, they’ll ask the court to issue a Bankruptcy Restrictions Order (BRO). A Bankruptcy Restrictions Order can last for between 2 and 15 years and will appear on the Individual Insolvency Register on the Insolvency Service’s website. It will also include information on how long the order will last.
Restrictions imposed by a BRU or BRO
They are the same as those that to apply to an undischarged bankrupt as noted above. A new report to creditors is issued giving details of the BRO or BRU. Details of individuals subject to restrictions are published on the Insolvency Service Register and a press notice may be issued.
What happens to your home
Mortgages and secured loans
Restrictions recorded with the Land Registry
If someone wants to buy your beneficial interest in the property
If your home is sold
Vehicle essential for work
The official receiver looks at whether:
Vehicle essential to meet a basic domestic need for you and your family
The following will be taken into account:
Hire purchase and lease agreements
What happens to joint debts?
After your bankruptcy is formalised, you no longer have to make payments to most of your creditors, however, the aim is to ensure that creditors receive at least part payment if you can afford it. For this reason, the official receiver or your trustee in bankruptcy will ask you to agree to make contributions towards your bankruptcy debts, if you can afford to, for a period of time, usually 3 years.
If you have more income than you need to pay for your own and your family’s reasonable day-to-day living expenses, the official receiver will ask you to make payments under an IPA (Income Payments Agreement). If you do not agree, the official receiver will apply to court for an IPO (Income Payments Order). An IPO is a court order, so if you don’t keep up the payments, your trustee may ask the court for an order suspending your discharge from bankruptcy, or they can ask for money to be taken directly from your wages, or take other legal action to recover the unpaid amounts.
The official receiver will consider your monthly household income and expenditure when deciding whether payments should be made. There is no fixed amount to be paid but the official receiver will only ask for an IPA or IPO if you can make a minimum payment of £20 per month. If you have more than £20 disposable income per month you will be expected to pay it all as your IPA or IPO payment.
Changes in circumstances
If your income changes, you must contact the official receiver immediately. You will have to fill in a form that gives details of your new income and your current spending. Your IPA or IPO may be changed to take account of the change in your circumstances: If your income has gone down, the official receiver may decide to suspend your payments under the IPA or IPO until your situation improves, if your income has gone up, they may decide to increase your payments.
If you receive a lump sum you may be asked to make a one-off payment from the lump sum to cover the amount left to pay on the IPA or IPO. This can happen even if you have been discharged.
If you miss a payment, your trustee will ask you for an explanation and, where possible, arrange for you to pay the arrears over a short time. If the problem is more long term, such as a drop in your income or a necessary increase in your spending, the trustee will look at the situation again. If your trustee is satisfied that an IPA or IPO is no longer appropriate (for example because you have lost your job or your income has dropped) your trustee will tell you that payments will be suspended or reduced until the situation improves. If this happens, you must tell your trustee if things improve before the term of the IPA or IPO ends. If you can at any time restart the payments or increase them, the IPA or IPO will continue from that point. However, the agreement or order will end on the originally agreed date.
Sources of income
Reasonable day-to-day living expenses
Normal monthly expenses, would include rent or mortgage payments (which are reasonable for the area you live in and the size of your family), food, heating and lighting, etc. Below are some examples of things that can also be treated as reasonable expenses:
Other expenditure items that could be considered:
This is not meant to be a complete list, and other expenses could be allowed.
The following are not likely to be allowed, except in exceptional circumstances:
The official receiver will always consider your views about what is ‘reasonable’ or necessary spending for your circumstances.
Scotland has its own bankruptcy process which is substantially different. The process is administered by Accountants in Bankruptcy (AIB). In Scotland, Bankruptcy is also known as sequestration.
To apply for bankruptcy in Scotland
Low Income Low Asset (LILA)
LILA is a route into bankruptcy for people who have a low income and low assets: