Bankruptcy is a formal insolvency procedure for individuals, designed to release an individual from their debts when they can no longer pay them, and allowing creditors to be repaid fairly.
Before filing for bankruptcy, it is important to assess your options, as there exist alternatives that can can be used and may be more appropriate. These are best suited to those whose financial circumstances are likely to change in time.
An IVA is a legally binding agreement constituting a plan made between yourself and your creditors to pay off all or part of your debts over an agreed period. This renegotiation must be approved by your creditors, and then supervised by an insolvency practitioner.
DROs offer a solution to those individuals with debts lower than £30,000 with little or no disposable income and who do not own their home or have other proprietary interests. In these instances, you are still required to pay your rent, bills and other certain debts (for example, child support or magistrates’ court fines).
If your circumstances are unlikely to change, and there exists little possibility of paying your debts off within a reasonable time, commencing bankruptcy proceedings may be the most suitable option.
Bankruptcy proceedings begin when a bankruptcy order is made to the court, typically by the individual themselves, or by a third party, such as a creditor. These applications can be made in two circumstances:
An individual can seek to declare themselves bankrupt via an online application to the adjudicator, who has 28 days to reach a decision (extendable by 14 days if further information be required). Applications (costing £680) can only be made on the ground the individual is unable to pay their debts.
To be granted, this application must also meet the following statutory requirements:
Here the creditor must be owed at least £5,000 by the individual and for a liquidated sum, payable either immediately or at a certain future point. The individual must appear to be unable to pay the debt - or without reasonable prospect of doing so - and the creditor must serve a statutory demand on the individual to establish this. A creditor also needs to conduct an official search for pending bankruptcy petitions against the individual.
The court can then either:
Where an order is granted, an ‘Official Receiver’ (OR) will be appointed. An OR is an officer of the court who takes over management of the insolvent’s estate. This role (non-exhaustively) includes investigating the affairs of the bankrupt and distributing assets to the bankrupt’s creditors.
The bankrupt individual must deliver to the OR:
They must also cooperate by:
The OR will decide what happens to your assets:
In most cases, the bankrupt individual will be automatically discharged from bankruptcy 12 months after the order.
You will be freed from your debts, except for:
Discharge does not bring the process of asset realisation and distribution by the OR to an end, and creditors owed a bankruptcy debt remain entitled to their share of the asset realisations. You must also continue to make payments under any existing IPA. If your family home has not been dealt with 3 years after the bankruptcy order, the interest may be given back to you.
Bankruptcy will remain on your credit file for six years following the making of a bankruptcy order, after which you must check for its removal. However, you will be removed from the Individual Insolvency Register within three months following discharge.
The information on this website is intended as a guide and does not constitute legal advice. Vardags do not accept liability for any errors in the information on this website, nor any losses stemming from reliance upon the statements made herein. All articles and pages aim to reflect the legal position at time they were published, and may have been rendered obsolete by subsequent developments in the law. Should you require specialist advice, tailored to your situation, please see how Vardags can help you.