If you’ve got serious financial problems you may have been told that bankruptcy is an option for you………and so If you are thinking of going bankrupt, there will probably be a lot of things that you want to ask.
There is so much more information on our website in relation to bankruptcy and all things relating to insolvency so go and take a look and sign up for our newsletter. Link is here .
I’m going to give al the benefits of my experience so that you can make informed choices.
Bankruptcy is one of the many tools available to everyone who wants to deal with their debts. There are various other options and everyone’s situation is different.
How does bankruptcy work ?
You can apply to go bankrupt online via the government website . In the old you would have had to go to Court and hand in your application , pay a fee and then the judge would go through all your paperwork and make the Bankruptcy Order .
Now you can fill out the forms online and normally within a minimum of 3 to 7 days you will receive your Bankruptcy Order via email.
There is a form which needs to be completed on line which is quite cumbersome and you’ll need to have various documents handy to help you fill in the form as accurately as possible.
What is Bankruptcy ?
Bankruptcy is the legal process in the UK which allows you the individual person with a significant amount to write off almost all that debt. It can be a way to start fresh and have a new beginning.
There are certain debts which can’t be written off as part of the bankruptcy process but I have done another video about that and how you would deal with those debts which can not form part of the bankruptcy.
What happens when you go bankrupt?
So once the form is completed online and the application is submitted …..what this means in layman’s terms is when you have clicked the button online to submit the form and paid the fees. The fees are £680. There are concessions to paying the fee which I will go into in my other videos.
So once the submission has been received it lands as an email into the adjudicators inbox who reviews the form in some detail and decided whether a bankruptcy order should be granted. If they have queries, then you will get an email listing the queries out and you will then have to respond to those queries before the Order is granted.
Remember it is the insolvency Service’s Adjudicator who approves the bankruptcy. They will look at whether you are insolvent and that you have more liabilities than assets and care unable to pay your debts as and when they fall due.
One of the reasons an application can be rejected is that the person does not live in the UK.
Who is the Official Receiver ?
The Official Receiver is part of the Insolvency Service is the
Department for Business, Energy and Industrial Strategy . A bit of a mouthful!
The Official Receiver’s job is to go through your form , review and investigate all your assets you have had over the last 5 years and review all the liabilities . The liabilities are people and companies you own money to.
It is their job to decide
- if any of your assets will be sold. But most people do not lose any assets! Again , there is more information on my website about how your assets are dealt with in bankruptcy.
- And whether you have enough surplus income to make monthly make monthly payments for three years, called an Income Payments Agreement. Most cases do not have an Income payments agreement. In the old days it was called Income payments Order – it was an order that YOU HAD to pay the money on a monthly basis BUT now it is an agreement between you and the OR.
All your assets in your name become the property of your estate in bankruptcy and so if you want to buy them back then you will need to negotiate with the Official Receiver.
So how long does all this take in bankruptcy ?
It normally lasts for 12 months and then you are automatically discharged from Bankruptcy BUT this is only if the OR hasn’t found anything which might be contentious in the bankruptcy such as that you have sold assets for less then what their real value was and have pocketed the money or have spent it on something else. OR you have deliberately gone out of your way to obtain credit and borrow money from people or companies knowing that you were going to go bankrupt OR that you have paid a friend of your money which they were owed in priority to paying someone else There are various matters which the OR will investigate going back to 5 years.
This is why it is very important to take advice before you file the application for bankruptcy so that you know all the do’s and don’ts and are made fully aware of all the things which could happen after you have completed the online application.
Ok so what do you mean by Discharged from Bankruptcy ?
Once the 12 months are up and the OR has been satisfied with all the answers you have provide in relation to your assets and liabilities your bankruptcy comes to an end automatically. There is no process from the ORs office. I always say to people that it is better to obtain a document which is called a DISCHARGE CERTIFICATE . You can find this form on the government website and use the template which need to be sent to your local Court with a fee of £75 . It is normally sent to your local County Court who will rubber stamp the form with the official Courts seal. This Certificate can then be uploaded on Equifax or Experian websites to show that you are now a DISCHARGED BANKRUPT.
What do you mean by a Discharged Bankruptcy ?
Ok so what happens is ….let me explain. When you go bankrupt as in once you have submitted the online application then your bankruptcy becomes public knowledge within about 2 weeks, It is registered on the official register. Anyone can look up your name and find your details . It wont say much only that you are bankrupt and the date of the bankruptcy. This information is collected by the credit reference agencies Equifax and Experian – these are the 2 main ones . There are a few more. You just need to look on google.
It will be recorded on your credit file that you are an UNDISCHARGED BANKRUPCT.
So when after 12 months your bankruptcy is automatically finished and that you are discharged it is better to file the Certificate of Discharge so that the entry can be changed to DISCHARGED BANKRUPT.
I can not stress strongly enough how important it is do that .
Why is it important to file the Certificate of Discharge ?
Well because it will help your credit scores in a big way. After to go bankrupt your credit score will be affected significantly and so filing the discharge certificates helps to get your credit score back up to what it used to be. It won’t go up straight away BUT gradually it will get better.
For instance if you wish to apply for a mortgage or Hire purchase for a car then anyone looking at your credit file will be able to see that you are Discharged from bankruptcy rather than an UNDISCHARGED BANKRUPT.
This notice stays on your credit file for 6 years. The first year is the bankruptcy year and then 5 more years after that.
As I have said before it is very important to take advice before deciding filing your bankruptcy application. There is lots of information in relation to bankruptcy on my website.
So what happens to my job in bankruptcy ?
There are certain jobs which you cannot do as a bankrupt . For example
- Charity trustee
- Company director
- Insolvency Practitioner
- Justice of the Peace
- Registrar of births, marriages and deaths
- Consumer credit licence holder
- MP Member of parliament
In my professional industry –so thats solicitors, accountants, financial advisers , business advisors – you will probably be prohibited by the professional body to which you belong to from practising until you have been discharged after a year. It may be possible to find a similar role for which you do not technically need to have the relevant professional qualification.
With certain jobs like working for a bank or the police force you will need to check if your employer needs to be made aware of your bankruptcy.
Why does it affect my job?
Well for the employer the important thing is that they normally that they don’t like employing people with large financial problems because of concerns about fraud and leaving the bankrupt person in charge of finances and also blackmail.
By going bankrupt you are getting rid of your debts and by telling your HR department you are eliminating the chance of blackmail.
So it is very important to have a discussion with your HR department in confidence or your boss that way the chances of losing your job are minimised.
Lots of people worry unnecessarily about their job and bankruptcy. Unless you work in one of the areas mentioned above it is extremely unlikely that you will have any employment problems.
What about when I am filling out job applications or filling out official forms?
You would have to be honest . So if one of the questions is
Have you been made bankrupct before OR made an arrangement with your creditors?
Then you have to be honest. If the answer is NO then then you’re safe.
We have provided guidance about bankruptcy – whether it is a good option for the self-employed and people with small, limited companies.
You can be self-employed as a bankrupt, but your existing business will be closed down and you will have to start to trade again. If you are a decorator and you just have the tools of your trade this won’t be a problem. If you employ other people and have a lease on a building, this gets more complex and you should take professional advice.
One of the things to bear in mind is that YOU CANNOT TRADE IN OTHER NAME THAN THE NAME YOU WERE MADE BANKRUPT IN AS IF YOU DID THEN IT WOULD IMPLY THAT YOU WERE TRYING TO DEFRAUD PEOPLE YOU ARE DOING WBUSINESS WITH.
How does bankruptcy affect me if I am renting my house?
It wouldn’t really affect your current tenancy if you are already renting BUT getting a new tenancy may prove to be a little difficult as it will show up when your credit check is carried out.
There could also be a legal clause in the tenancy agreement which allows your landlord to end it if you are made bankrupt.
If you live in council or housing association property, it is extremely unlikely that you will lose your home. If you are renting privately, your landlord is highly likely to want to keep you as a tenant – after all, if you have managed to keep paying the rent so far despite your other debts! It is a rare landlord who would prefer to get rid of a good tenant and have to look for a new one.
So how do I get around this Tenancy problem?
Ok so here area a few ways around the issue
find somewhere to rent privately, not through a letting agent, as landlords can apply common sense to your situation whereas letting agents normally have no discretion;
get a guarantor;
have a very large deposit;
or delay your bankruptcy until after you have moved.
And what happens to those who have a mortgage ?
There are some blogs on my website about how property is dealt with in bankruptcy .
As long as you carry on paying your mortgage then you are fine. The mortgage is a secured debt in the bankruptcy and therefore as long as you keep the mortgage holder happy you will be ok. If you get yourself into mortgage arrears then the bank will take legal action for repossession and sale of the property.
If you are struggling to pay your monthly mortgage payments and want to hand the keys back to the mortgage company, then that is an option. Any shortfall after the sale will be added to your bankruptcy debts.
There are some interesting articles on my website about property in bankruptcy so please do check them out.
What about the amount of equity a person has in the property?
Again this is quite a lengthy answer and can be a complex situation depending on the value of the house and how many secured loans there are the house.
But in a nutshell If your house is worth more than the amount owed on any mortgage plus any other secured loan, then that means that there is equity in the property and the Official Receiver or Trustee in bankruptcy will want to negotiate with you. The last thing they want to do is sell your property.
There is way of working these figures out yourself by looking at say Zoopla and seeing what your property is worth , get an UpToDate redemption statement from the mortgage company and on any other secured loan you have . Then its the value of the property less the money you owe .
If the property is jointly owned then any equity is split in to 50/50.
Can the official Receiver or the trustee sell my house?
No they wont sell your house because the costs associated with the sale so that the estate agents costs and solicitors fees can be quite high and can reduce the amount of surplus left after the sale and so generally speaking the Official Receiver will want to do a deal with you. Technically your share of the equity if it is held in joint names – so the 50% of your value can be negotiated. They also want to deal with the equity situation in a timely manner .
You can also add to your negotiation the issues with your property for instance if you need new windows , a new boiler or the roof is leaking. All of these things can help in reducing the amount you pay to purchase our equity back from the OR. Your partner can make an offer to buy your share of the equity back from the OR.
What if I own the property in my sole name ?
It’s a little harder when you own the property in your sole name. the same situation applies as in the property will vest with the Official Receiver ) until you negotiate to buy it back. You can ask a third party to buy it back for you – so that could be your brother , sister , parents and a close friend who you trust. They will need to find the funds from which to buy the property back from the OR.
As long as you co operate with the OR and answer all the queries they have in relation to your bankruptcy then the process is quite simple . There is more info on my website in relation various matters surrounding bankruptcy.
share of the equity is less than 50% if, say, your partner provided more than half of the deposit for the house, or if your partner has paid for large improvements such as installing central heating or building a conservatory.
If you have never owned any part of the property, the OR may still decide you have some beneficial interest in the property if you have contributed towards the deposit for the mortgage, if you have paid the mortgage or if you have paid for large improvements to the house. This is a complex area – discuss your situation with National Debtline if you think it might apply to you.
Ways to avoid losing your house
The OR has three years to decide what to do with your property. If there is no equity at the end of this time, the house will usually be returned to you.
You can avoid losing your home if a relative or friend can “buy” your equity from the Official Receiver:
- this could be your partner who owns the other half of the house if they are not going bankrupt;
- if there is no equity in the property a relative or friend can buy your interest for a nominal sum from the OR plus costs of a few hundred pounds.
If you cannot arrange for someone to buy your equity then you are going to lose your home:
- you should explore the alternatives of a DMP and an IVA in detail before deciding that bankruptcy is preferable.
- when your family are living with you, you are usually given 12 months before the sale to give time to make other living arrangements.
- if you have children or a disability, having your house sold by the OR will usually mean that your local council will be obliged to re-house you when you are made homeless.
- if you prefer to rent privately you will be allowed to save up a deposit for renting. Sometimes this could be done by stopping paying the mortgage.
There is no point in trying to transfer your half of the house to your partner (or anyone else) before you go bankrupt to avoid losing it. If your name is not on the deeds of your house so that you are not its legal owner, the OR may still decide that you have a beneficial interest in the property.
What about my car?
If you have a car, you may lose it unless it is essential. The simple case is where you have to have a car to get to work, perhaps there is no practical public transport or you have to travel for your job. You may also be able to have a car if it is essential for other reasons – health problems, school runs, caring responsibilities. You will need to explain why this is the cheapest or only practical alternative you have.
But if you drive a car that belongs to your partner or a relative, it is safe. This applies even if you are the registered keeper of the car. You may need to produce proof of who bought the car.
If a car is essential, you will be allowed to keep yours if it is cheap. In October 2021, the Insolvency Service said that the guidance to Official Receivers is being updated so that if it is worth less than £2,000 you can keep it. Otherwise, it will probably be sold and you will be given about £1,250 to purchase a cheaper car.
Cars on finance
The exception here is a car on finance. Here you do not own the car but it is more complicated and you should talk to us so that we can give you some guidance . Some finance agreements have a clause which allows the lender to end the agreement if you go bankrupt or enter an Individual Voluntary Arrangements .
If you have HP which is just about to end, you may soon own the car. But early in finance or with PCP, most cars on finance will have negative equity, so the OR will not want to sell them.
Whether you are allowed to make the finance payments will depend on how large they are and whether you need the car for work.
What about all my other possessions?
You will lose any savings and investments (except your pension, see below) even if they are very small, such as £25 in premium bonds.
For possessions, you have to list your “assets” on your bankruptcy application if they are worth more than £500.
This £500 is their second-hand value, what you could sell them for, not what they originally cost. Even a new laptop or large fridge freezer is unlikely to be worth £500 second-hand!
It’s important to emphasise what doesn’t happen and what is not at risk:
- no-one will visit your house to make a list of stuff to be sold.
- the Official Receiver is not interested in the tools of your trade, your personal possessions, clothes or household goods unless they are of unusual value.
- your partner’s things and your children’s toys don’t have to be listed and are not at risk.
Your partner or a friend can offer to buy any items which the Official Receiver does claim, such as your car.
As a general rule, you should not give away or sell assets for less than they are worth before you go bankrupt. This doesn’t apply to normal presents, eg to children at Xmas.
The OR can go back and overturn transactions up to five years in the past. You may already have done this without any intention to defraud the Official Receiver . If this is the case, you should list the sale/gift on your bankruptcy application.
Will my pension be affected?
If you are already drawing money from your pension, then the income from this is included in the Income Payment Agreement calculations?
If you are under 55 and not yet drawing money from your pension then it is not at risk except under extremely unusual circumstances eg you have made extremely large contributions to it which seem to have been funded by debts; a normal company pension will not be touched.
This is a bit more complicated if you are over 55 and have a defined contribution pension. Basically your pension will not be touched but if your pension pot is large you may be considered not to be insolvent, so you cannot go bankrupt.
Who will know that I have gone bankrupt?
The OR will inform your creditors and, sometimes, your landlord about your bankruptcy.
Your employer is not informed of your bankruptcy. In theory, an employer could guess what has happened because your tax code will be changed to a nil code. But this isn’t likely – people’s tax codes change all the time and there are plenty of other reasons you may have a nil tax code apart from bankruptcy.
The Insolvency Register has the official list of names of people who have gone bankrupt, had a DRO or an IVA.
If you are at risk of violence, it is possible for your address not to be published – talk to a debt adviser about how to do this.
Bankruptcy Notices used to be printed in a local newspaper, but this is now very rare. It is usually only done if you are self-employed and the Official Receiver thinks you may have some local creditors. A small notice about your bankruptcy is placed in the London Gazette.
Can I get a mortgage afterwards?
It will be harder and you should assume that you will need a larger deposit than someone on the same income who has not been bankrupt.
The other insolvency options Individual Voluntary Arrangements IVAs and Debt Relief Orders all have the same effect on your chance of getting a mortgage in future.
But also step back and ask yourself whether you have any chance of getting a mortgage if you don’t go bankrupt.
If you aren’t that young, or you don’t have a well-paid job and you live in an expensive part of the country, then owning your own house may just be a dream with no real chance of ever happening. Don’t let this sort of wishful thinking stop you taking the necessary measures to deal with your debts.