How To Go Bankrupt

What is Bankruptcy?

Bankruptcy may be considered when an individual can no longer afford to pay their debts.

Anyone can go bankrupt, whether it be an individual, members of a partnership or a company.

Bankruptcy is a legal status that usually lasts for twelve months, after which, the majority of your debts will be cleared.

There may be other options available such as an IVA (Individual Voluntary Arrangement), DMP (Debt Management Plan) or a DRO (Debt Relief Order)

How does Bankruptcy work?

It is important to act as soon as possible when you have a problem with your debts to find out about all the options available to you.

Once Bankruptcy has been agreed, the courts will make a Bankruptcy order against you. Payment of your debts will be taken over by an official receiver who will repay them by selling some of your assets.

A court will make a bankruptcy order only after the bankruptcy petition has been presented. This will either be presented by yourself (debtor’s petition); or by one of the creditors who are owed at least £750 by you and it is unsecured (creditor’s petition).

A bankruptcy order can be made even if you refuse to acknowledge or refuse the proceedings. You should co-operate fully once the proceedings have begun. You should try and reach a settlement before the bankruptcy petition is due to be heard if you dispute the claim.

When will my Bankruptcy end?

You will go through a process called “discharge of Bankruptcy” which removes the restrictions of bankruptcy and releases you from the majority of the debts you owed when the bankruptcy order was made.

You will usually receive your discharge automatically, even if no payments have been made to your creditors, you will be making contributions through an income payments order.

The official receiver can apply to court for a bankruptcy restrictions order, which means you continue to be the subject of restrictions after discharge for the length of time stated in that order. This will not affect the discharge of your debts.

Will I lose my home?

To help pay your bankruptcy debts the official receiver or the trustee may have to sell your home. Your lender may be able to sell your home if your home is mortgaged and you fall behind with your payments. You should contact your lender about your mortgage payments and your bankruptcy.

What are the restrictions of Bankruptcy?

The following are criminal offences for an undischarged bankrupt:

- obtaining credit of £500 or more
- carrying on business (directly or indirectly) in a different name from that in which you were made bankrupt, without telling all those with whom you do business the name in which you were made bankrupt
- being involved (directly or indirectly) in promoting, forming or managing a limited company, or acting as a company director, without the permission, whether formally appointed as a director or not.

Certain public offices may not be held. You are restricted in holding office as a trustee of a charity or a pension fund. Once the bankruptcy order has been completed, you can open a bank or building society account but they must be informed of the bankruptcy this may lead to conditions and limitations being placed. Overdraft facilities are forbidden without informing the bank that you are bankrupt.