Bankruptcy

Bankruptcy is a very big step and should only be considered as a last resort. It can have lasting consequences that may impact you in the future.
What is bankruptcy?

Shattered card

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:

  • A debt management plan (DMP) where you pay a certain amount every month and this is proportionally distributed between all your creditors.
  • Informal repayment agreements or token payments.
  • Challenging debts using the Consumer Credit Act. If most of your debts are credit cards, loans and catalogue accounts you took a long time ago, it is worth exploring this option.
  • Lump sum offers to settle your debts for a reduced amount.
  • Help from friends and family, if you are going through a bad patch.
  • A mixture of the above.
  • A Debt Relief Order (DRO) if your debts are below £20,000 and you have a low income and few assets could be a cheaper option.
If you opt for bankruptcy, some of your possessions and financial assets may have to be sold to pay your creditors.
If you are a homeowner, your home may have to be sold, even if it is jointly owned with your partner or someone else.
You will have a lot of restrictions on how you conduct your financial affairs, including your ability to borrow money or run a business.
Bankruptcy will make it very difficult for you to get credit or loans in the future. Even after it disappears from your credit file, some lenders may ask if you have EVER been bankrupt or declared insolvent.
Depending on what you do for a living, bankruptcy can affect your current job as well as future employment prospects. 

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.
A substantial part of your income will have to be paid to your creditors, leaving only a small amount of money for your living expenses.
Advantages and disadvantages
  • Advantages
    • Bankruptcy allows you to wipe the slate clean and start afresh, often after just one year.
    • Not having to deal with creditors yourself, respond to court claims or deal with bailiffs.
    • No need to wait for five or six years for debts to go time barred (12 years for mortgage shortfalls).
    • Most of your debts will be written off.
    • No need to make regular monthly payments for many years to come, as with an IVA or DMP.
    • You are allowed to keep certain things such as household goods and a reasonable amount of money to live on.
  • Disadvantages
    • Potential impact on employment.
    • Difficulty obtaining credit in the future.
    • If you own your home, it may have to be sold
    • You may find it difficult to rent privately.
    • You will usually have to close your bank account and most banks will not let you open an account when you are bankrupt. Your bank accounts will be frozen, leaving you with no access to your money.
    • Utility and telecoms companies will want you to pay in such a way that involves you not having credit.
    • You won’t be able to act as a company director while you are undischarged. If you are currently a director, you will have to resign.
    • You may not be able to carry on running a business.
    • You lose control of your assets and some of your possessions may have to be sold.
    • The official receiver will ask you to agree to make contributions towards your bankruptcy debts, if you can afford to, for a period of time – normally 3 years.
What debts can be included?
  • The following debts can be included
    • rent arrears, however, your landlord can still take action to evict you;
    • utility bills (gas, electricity, water);
    • mobile contracts and phone bills;
    • council tax and business rates arrears (sole trader);
    • income tax, VAT and National Insurance arrears (sole trader);
    • credit cards, store cards and catalogue accounts;
    • overdrafts and loans (from banks, payday lenders and doorstep lenders);
    • benefit overpayments (excluding loans from the social fund);
    • family and personal debts;
    • hire purchase and conditional sale agreements if you are in arrears (if you are not in arrears you may be able to exclude these debts in certain circumstances);
    • hire agreements;
    • parking penalty charges;
    • mortgage shortfalls;
    • small business debts such as money owed to employees and suppliers and debts to clients who have paid for goods and services you were unable to supply.
  • The following debts cannot be included
    • debts secured on property – your creditors will still have the right to apply for a possession order;
    • magistrates’ court fines;
    • child support and maintenance payments;
    • student loans;
    • social fund loans (budgeting and crisis loans);
    • any obligation arising under a confiscation order made under section 1 of the Drug Trafficking Offences Act 1986 or section 1 of the Criminal Justice (Scotland) Act 1987 or section 71 of the Criminal Justice Act 1988 or under Parts 2, 3 or 4 of the Proceeds of Crime Act 2002;
    • any liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other duty, or to pay damages under Part 1 of the Consumer Protection Act 1987 in respect of the death of personal injury to anybody.
With debts that cannot be included, this means you will still have to repay them in full and you should list them on your application and make allowance for their repayments in your outgoings.
Process

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’.

The Royal Courts of Justice imageIf you are in London, it is the High Court:

Bankruptcy Court
Royal Courts of Justice
Strand
London
WC2A 2LL
Tel: 020 7947 6000
Tel: 020 7947 6441 (Bankruptcy enquiries)

Download the following forms

ImportantYou must list ALL your creditors on the forms, even if you dispute some of the debts. You must also give details of all your bank accounts. You will be asked to list any assets and items with a resale value, for example, antiques and jewellery. Valuables listed may be sold.

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.

Your bank accounts will be frozen, so you should make sure you have enough money to cover your day to day expenses before you apply as well as to pay the deposit and court fee.
It is a criminal offence to make false statements on the forms, to conceal or fail to disclose any assets. It is also an offence to dispose of assets before declaring bankruptcy. This can result in a fine or a prison sentence.
The judge may ask you whether you have taken sufficient advice before deciding on bankruptcy. Your application may be rejected if it sounds like you have not taken enough steps to ensure bankruptcy really is the best option.

What happens next?

  • Once you have sworn your affidavit, the court may fix a time for the hearing, or hear your case straight away. At the hearing, the court will decide whether to make a bankruptcy order.
  • Once the order is made, all your bank and building society accounts will usually be frozen immediately and your money will come under the control of the Official Receiver.
  • You will then have an appointment to see the Official Receiver, although this can sometimes take place over the phone.
  • You may be asked to complete a questionnaire (form B40.01) which repeats a lot of the information from the statement of affairs you submitted, so it will help to have a copy of your statement of affairs form handy for this interview.
  • After your interview, the Official Receiver will tell your creditors about the bankruptcy, and send them a report with a summary of your financial situation.
  • Your assets will be sold to pay off some or all of your debts. The costs of the bankruptcy are paid first from the money that is available. The costs include fees that the Official Receiver charges for dealing with your case.
Fees and help with fees

Fees

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:

  • Income Support;
  • Income-based Jobseeker’s Allowance (JSA);
  • The guarantee credit element of Pension Credit;
  • Income-related Employment and Support Allowance; or
  • Working Tax Credit (if you are not getting Child Tax Credit as well).
You must ask the court for exemption from the fee. You need to give the court proof that you are getting the benefit and will need to fill in form EX160A. The form can be found at the end of this guide: Court fees, do I have to pay them?
  • For Income Support, income-based Jobseeker’s Allowance and income-related Employment and Support Allowance this should be a letter or notice that is less than one month old.
  • For Working Tax Credit the letter or notice should refer to the current financial year.
  • For the guarantee credit element of Pension Credit, the letter or notice should show that your assessed income period covers the current financial year.

Fee remission if you are on a low income

  • NotesYou will not have to pay the fee if your gross income (before tax and National Insurance are taken off) falls below a set limit. This limit changes each year. Your income includes pensions, Child Benefit, Child Tax Credit and child maintenance.
  • Your partner’s income is also taken into account as well as the number of children you have. You will need to give the court proof of your income. You need to give the court your Child Benefit notice to prove how many dependent children you have.
  • You can also qualify for a reduction in the fee called a ‘part-remission’ by telling the court how much money you have left after paying essential bills such as rent or mortgage, childcare, maintenance and court orders.
  • There is a set amount allowed for living costs. The court can only take certain items into account. They then work out what they call your ‘disposable monthly income’. If your disposable monthly income is below a set amount (currently £50) then you will not have to pay the fee.
  • You may only have to pay part of the fee, depending on how the court has worked out your disposable monthly income. The calculation is complicated and you will need to give the court proof of your income and bills at the time you apply. Ask the court for help.

Help with paying the deposit

There are some charities and other organisations that may be able to offer help with paying the deposit.

Useful websites

Restrictions
The following restrictions apply while you are undischarged (normally 12 months):

  • no cardsYou must disclose their status if they wish to obtain credit of more than £500.
  • You must not carry on business in a different name from that under which you were made bankrupt without disclosing to everyone you wish to carry on business with the name or trading style you used when you were made bankrupt .
  • You must not act as the director of a company or take part in its promotion, formation or management unless you obtain permission from the court to do so.
  • You may not act as an insolvency practitioner or as receiver or manager of the property of a company on behalf of debenture holders.
  • You may not hold any of the following positions:
    • Member of Parliament in England and Wales
    • Local councillor
    • School governor
    • Any other positions as contained in legislation.

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:

  • hiding cardsobtaining credit by giving false information;
  • not keeping records that could explain a loss of money or property;
  • gambling or making extravagant speculations;
  • carrying on a business when you knew you could not pay your debts (trading with knowledge of insolvency);
  • causing your debts to increase by deliberately not managing your business properly;
  • taking out credit which you knew you couldn’t repay;
  • giving away your assets or selling them at less than their value to avoid them being included in the bankruptcy;
  • deliberately paying some creditors in detriment of others;
  • failing to disclose property or assets;
  • failing to supply goods or services which have been paid for (taking deposits);
  • not cooperating with the official receiver or trustee.

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.

If you break the order it can constitute a criminal offence.

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.

BRO process

investigation

  • A report is submitted by the official receiver to the Insolvency Service’s Investigation and Enforcement Service (IES).
  • If IES accepts the report the official receiver will make application to court for a BRO hearing, this application must be made within 12 months of the date of the bankruptcy order. The court will then fix a hearing date.
  • The official receiver will send a copy of the report and application to the bankrupt. This will include details of the alleged wrongdoing and any supporting evidence.
  • The bankrupt will be asked to acknowledge receipt of the document within 14 days. If the bankrupt wishes to challenge the allegations they have 28 days to send or hand into the court evidence supporting their claims.
  • When the hearing takes place the court may grant a BRO, dismiss the application or adjourn the hearing.
  • A BRO may be made whether the bankrupt attends or not.
  • The court may ask the OR for a suggested BRO period.
  • If a BRO is granted, a copy is sent to the bankrupt and details will go into a public register and will remain there until the BRO ends.
Home and property

home puzzle

What happens to your home

  • Once you are bankrupt, your interest in your home is transferred to the official receiver or trustee.
  • If you are the sole owner, the whole of the value of the property is transferred to the official receiver or trustee.
  • If the property is jointly owned, the official receiver is only entitled to the share of the property owned by yourself, referred to as ‘beneficial interest’. This beneficial interest is usually assumed to be 50% of the equity.
  • The official receiver can decide to sell your property there is any equity in it and is the only way to pay your debts.
  • If you have family (such as a your partner and children) living in the property, the sale can be delayed for 12 months to give them time to find somewhere else to live.
  • They have up to 3 years to see if your house has risen in value and is worth selling. After this date, if no action has been taken, your home will belong to you.
  • The court will only refuse an order for sale in exceptional circumstances or if the value of your interest in the property is worth less than £1,000. In that case, the court will not order a sale or put a charge on your property.
The joint owner or family and friends can make an offer to the official receiver to buy out your share of the equity, this is particularly helpful if there is little or no equity.

Mortgages and secured loans

  • Any amounts owed on mortgages and other loans secured on the property will be repaid from proceeds of the sale. Your beneficial interest is calculated after deducting these amounts.
  • If you have a mortgage or secured loan on the property the monthly payments still need to be maintained to stop your lender taking possession action.

Restrictions recorded with the Land Registry

  • If the property is solely owned, a bankruptcy restriction notice will be recorded with the Land Registry. A restriction is automatically placed when a bankruptcy order is made to establish that the bankrupt is no longer the legal owner of the property and does not have the ability to sell the property or enter into any other dealings in connection with the property.
  • If the property is jointly owned, a Form J restriction will be recorded. It is a record of the trustee’s beneficial interest in the property and means that the Land Registry must notify the trustee of any dealings in connection with the property.
  • The legal interest in a jointly owned property does not transfer to the trustee, meaning the bankrupt and co-owner can still sell the property, but the trustee must be paid the value of the bankrupt’s beneficial interest from the sale proceeds. The Form J restriction will only be removed when the trustee has been paid their beneficial interest in the property.

If someone wants to buy your beneficial interest in the property

  • If a family member, friend or relative wants to buy your beneficial interest, they should contact the official receiver for information.
  • If your beneficial interest has a value of more than £1000 they may be able to take part in a property conveyancing scheme run by The Insolvency Service and a firm of solicitors. Under this scheme, the beneficial interest can be transferred back to you, or it can be transferred to your husband, wife, partner, relative or friend.
  • If the home is mortgaged, the lender may have to agree to the sale – the solicitor or licensed conveyancer dealing with the transaction will be able to advise on this.

If your home is sold

If the property is sold, any shortfall on the mortgage or any other loan secured on your home is included in the bankruptcy, even if you have been discharged.
Sometimes, a lender might ask you sign a document (known as a deed of acknowledgment), agreeing to be responsible for the debt and any shortfall. If you sign it, the lender will be able to ask you to pay the debt after you have been discharged. If you are asked to sign a deed of acknowledgement, you should take legal advice before doing so.
Joint borrowers who are not bankrupt will be liable to pay the shortfall in full, whether or not they have signed a deed of acknowledgement.
Vehicles and hire purchase agreements

Vehicles

  • car and coinsThe official receiver or trustee will have to decide whether the vehicle is an asset in your bankruptcy or if it is exempt property. Exempt property is something you own that cannot be claimed as one of your assets and sold to help pay your creditors.
  • For your vehicle to be exempt, you will have to show the official receiver that it is necessary either for your work or to meet a domestic need for you or your family.
  • Even if the official receiver agrees that a vehicle is essential, they may sell it and provide you with a suitable cheaper alternative. In this case, the official receiver must provide the money for the replacement vehicle from the sale proceeds.
  • £1,000 is the current guideline allowance for a replacement vehicle. If you believe you need a more expensive vehicle, you would need to explain why.

Vehicle essential for work

The official receiver looks at whether:

  • you use the vehicle for work;
  • you would find it difficult to travel to and from your place of work without your own vehicle because there is no other kind of transport available, such as a bus or train service;
  • you would find it harder to get a job (or finding work if you are self-employed) without using the vehicle, even though you may not be working at the date of the bankruptcy order.

Vehicle essential to meet a basic domestic need for you and your family

The following will be taken into account:

  • Does the vehicle meet a genuine need rather than being used simply for convenience?
  • If you have a disability, the official receiver must be satisfied that the vehicle gives you a level of independent living that is only possible because you have your own vehicle. For example, it may be the most practical way for you to go to medical appointments or get routine care related to your disability.
  • If you say you need the vehicle to take children to and from school, you will need to show there is no alternative to using your own vehicle, and the distance to travel means that walking or cycling is not practical. If you live in a rural area, it is not enough to say a motor vehicle is exempt property just because your child’s school is a long way from home.
Official receivers use their discretion and consider the facts on a case-by-case basis.

Hire purchase and lease agreements

  • The terms usually give the finance company (the hiring owner) the right to end the agreement in certain circumstances. The hiring owner can usually take back the vehicle if a bankruptcy or winding-up order is made. The official receiver will find out from the finance company what kind of agreement it is, the amount owing under the agreement, and the settlement figure.
  • Depending on the value of the vehicle, the official receiver can then decide whether there would be any benefit to your bankruptcy estate in selling it. If there would be no benefit, the official receiver will ask the hiring owner to collect the vehicle as soon as possible.
  • If the payments under the agreement are up to date, the finance company might agree to another person taking over the agreement.
  • If you simply borrowed the money from a bank or finance company to buy the vehicle, they are unlikely to have any rights to take back the vehicle.
  • There may be a clause in your hire purchase agreement that allows the hire purchase company to terminate the agreement if you become bankrupt. In this situation, you will have to return the item.
  • Depending upon how much is left to pay on the agreement and the value of the vehicle, the official receiver may take action to sell the vehicle.
  • There may be some situations where you can keep the vehicle if a third party takes over the agreement for you. In some circumstances, you may be allowed to keep making the payments under the agreement yourself.
Pensions and other assets

Pensions

  • pension potMost personal and occupational pensions should be unaffected by bankruptcy. You will usually be able to keep your pension fund except in rare cases where you have paid very large amounts into your pension to try to stop creditors taking your savings.
  • If you are receiving pension payments, the trustee in bankruptcy will include the payments in assessing whether you can afford to pay something towards your bankruptcy debts. The trustee in bankruptcy can ask you to make payments if they consider you have more income than you need for the day-to-day expenses of yourself and your family.
  • If your only income is the state pension, or other state benefits such a pension credits, you will not be asked to pay anything.
  • If you have an income from any other type of pension, or other source, you will be asked to make payments if you can afford to do so.

Other assets

  • The official receiver will take control of your assets and may sell some of them. If you own a lot of valuable items, a separate insolvency practitioner, known as a trustee, may be appointed. Valuable household items such as antiques or expensive electrical equipment could be sold to raise money.
  • Things such as clothing, bedding, furniture and household equipment for basic domestic needs are not treated as assets. Items necessary for you to carry on your employment such as tools, books or vehicles can also be excluded.
  • If you are discharged from bankruptcy before any assets are dealt with, they will not belong to you on discharge. Your assets will continue to belong to (or ‘vest’) in the official receiver until they are dealt with.
Joint debts

What happens to joint debts?

With joint debts, the creditor has the right to claim the full balance from each debtor, this is known as ‘joint and several liability’. Each person is responsible for full payment of the debt.
If you have a joint debt and are made bankrupt, you can include the whole of the joint debt in your bankruptcy.
If other people who signed the contract are not bankrupt, the creditor can still pursue them for the full amount of the debt.
Where all of the parties to a joint debt are made bankrupt, they should each include the whole of the joint debt in their bankruptcy. So you should all list the full amount of the debt in your Statement of Affairs.
You can include the joint debt in your bankruptcy, but the creditor can still pursue any other party who is jointly liable for the debt, provided they are not bankrupt themselves, or subject to a form of insolvency such as a DRO.
Joint debts are not just loans in joint names, there can be joint liability for utilities such as gas and electricity, as well as council tax.
Joint bankruptcy is only available to business partners. With a couple, if both partners want to go bankrupt, they must file individually. In cases where there are large joint liabilities, it may be worth for both partners to consider filing for bankruptcy at the same time.
Income payments

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.

coins

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.

Missing payments

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.

If you miss making one or more payments, and do not contact your trustee to tell them about any difficulties you have making the payments, the trustee may apply to the court for an order suspending your discharge from bankruptcy.
 The trustee can also take steps to recover the money you owe, including applying for another bankruptcy order against you. Not making a payment under an IPO amounts to contempt of court and the court may punish you.

Sources of income

  • The official receiver will not ask for an IPA or IPO if your only source of income is benefit payments, such as income support, job seeker’s allowance, disability living allowance, incapacity benefit, council tax benefit, state retirement benefit, child benefit and all forms of tax credit (child, working and pension).
  • If your income is supplemented by benefits, the official receiver will look at how much you need to cover your and your family’s reasonable day-to-day living expenses. This would show whether you have any disposable income. If the official receiver is going to ask you for payments under an IPA, the amount of any payment would have to come entirely from any income that is not benefits. The official receiver would include your total income (including state benefits) in the calculation of surplus income, but only the money you earn from working would provide the payments under the IPA or IPO.
  • The official receiver will not ask for an IPA or IPO if your only source of income is from a student loan.
  • You will be asked to give details of your spouse’s or partner’s income, as it is assumed that they will contribute to the household expenses. The official receiver will also need details of payments from any other member of the household who contributes to household expenses. If you are not willing to give this information, you will not be able to claim that you pay the full amount of all household expenses.

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:

  • kid and coinsTV licence, TV and video hire
  • Household insurance
  • Car tax and insurance (if the trustee decides your car is ‘exempt property’ and allows you to keep it)
  • AA/RAC or similar membership (if you still have your car)
  • Membership of a professional body, needed for your job (unless your employer pays for this)
  • Prescriptions/dental treatment/opticians
  • Payment under a maintenance order or Child Support Agency assessment
  • Mobile phone (a reasonable monthly cost)
  • Dry cleaning.

Other expenditure items that could be considered:

  • money distributionClothing
  • Holidays
  • Hairdressers
  • Extra curricular activities for children
  • After school clubs
  • Pets
  • Rent arrears

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:

  • smoking and drinkingGym, sports or club membership
  • Additional pension contributions to enhance a pension
  • Private healthcare insurance
  • Money for gambling, alcohol or cigarettes
  • Satellite TV
  • Excessive mortgage payments
  • Regular payments to charitable and religious organizations.

The official receiver will always consider your views about what is ‘reasonable’ or necessary spending for your circumstances.

Reference

Useful websites

Discharge
  • court filesYour bankruptcy and restrictions associated with it generally end when you’re ‘discharged’, normally 12 months after the court made you bankrupt.
  • You are normally discharged automatically. If you wish to obtain proof, you can ask the official receiver for a confirmation letter free of charge, or obtain a certificate from the court (£70 fee).
  • You can check your discharge date online on the Individual Insolvency Register.
  • If you don’t cooperate with the official receiver or trustee or break the restrictions, it may take longer than 12 months.
  • When you are discharged you are no longer bound by the restrictions from the bankruptcy order, unless you are the subject of a Bankruptcy Restrictions Order (BRO) or has given a Bankruptcy Restrictions Undertaking (BRU).
  • You are also released from your debts (except those that could not be included in the first place).
Your assets remain under the control of the trustee and could be sold – even after discharge.
Unless you are subject to a BRU or BRO you can run a business or act as director of a limited company after discharge.

Credit files

  • The Insolvency Service will not update your credit files after discharge, so you should ensure the credit reference agencies (CRAs) hold up-to-date information.
  • The default date on your included debts should be no later than the date of your bankruptcy and settlement date no later than your date of discharge.
  • You may have to contact your creditors with a copy of your confirmation letter or certificate of discharge.
  • You should make sure your creditors are aware of your circumstances to stop them from re-selling debts that were included in your bankruptcy, and being hassled for them.
Bankruptcy in Scotland

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

  • Your debts should be at least £1,500.
  • You must be living in Scotland or have lived in Scotland during the last year.
  • Not have been bankrupt for at least five years.
  • Pay a £200 non-refundable fee. There are no waivers.
  • You also have to meet one of the following:
    • Be apparently insolvent, which means you are not able to pay your debts. Evidence of this can be a Charge for Payment or a Statutory Demand. These documents are normally served on you by Messenger-at-Arms or a Sheriff Officer; or
    • Have a Certificate for Sequestration, from an authorised money advisor or insolvency practitioner, obtained after submitting evidence of your income, assets and liabilities; or
      Meet the conditions of the Low Income, Low Assets (LILA) route; or
      Have signed a trust deed that failed to be protected.

Documents

  • A Charge for Payment is a legal document with the words ‘Charge for Payment’ at the top. It means that you owe money to your creditor and that you should pay them within 14 days. If you do not pay within this period, the Charge for Payment expires and can be used to prove you are apparently insolvent.
  • A Statutory Demand is a legal document with the words ‘Statutory Demand’ at the top. It is a final formal demand for payment and if you do not pay within 21 days, the Statutory Demand expires and can be used to prove you are apparently insolvent.
  • A Certificate for Sequestration certifies that you have demonstrated to an authorised person that you are unable to pay your debts as they become due, after submitting evidence of your income, assets (such as funds held in bank accounts) and liabilities (such as invoices and demand notices). Most money advisers, insolvency practitioners and some people who work for insolvency practitioners are authorised to grant a certificate. You can use the Certificate for Sequestration to apply for your own bankruptcy but you must apply within 30 days of the certificate being granted or it will no longer be valid. There is no charge for obtaining a Certificate for Sequestration, but the authorised person may charge you a fee for their advice.

Low Income Low Asset (LILA)

LILA is a route into bankruptcy for people who have a low income and low assets:

  • Low assets means that you have no single asset worth more than £1,000 and your total assets are not worth more than £10,000.
  • You must not own or jointly own a house or any other property or land.
  • Low income means gross weekly income of no more than the standard national minimum wage for a forty hour working week. Any pensions or maintenance payments that you receive are also counted in with your income.
  • When calculating your income no account will be taken of other social security benefits or tax credits you receive or any income paid to another member of your family.

The National Minimum wage rate from October 2012 is £6.19 per hour. This means that the criteria for low income is a weekly income of £247.60 before deductions. This is worked out as £6.19 x 40 = £247.6.

To find out what the current minimum wage is visit the HMRC minimum wage website.

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