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What is Bankruptcy?

Bankruptcy is a legal process that you can enter into when you are unable to pay your debts. It is normally chosen as a last resort, but for some can be their only means of a new start. You can enter into Bankruptcy yourself, or if you have debts of over £750 your creditor/s can apply to make you Bankrupt.

Bankruptcy frees you from your debt because of the inability to pay it. The Trustee will sell off any of your assets and distribute the proceeds to your creditors, in order to pay off as much of the debt as possible.
At the end of your Bankruptcy your creditors cannot make any further claims against you for the debt.

How are you made Bankrupt?

An individual can be made bankrupt either in one of three ways:

Voluntarily - You can make yourself Bankrupt
Involuntarily - You can be made Bankrupt from a creditor you owe money to (£750 Minimum).
The supervisor or anyone bound by an IVA can be made bankrupt if the terms are not followed

A bankruptcy order can still be made even if you refuse to acknowledge the proceedings or refuse to agree to them. You should therefore co-operate fully once the bankruptcy proceedings have begun. If you dispute the creditor’s claim, you should try and reach a settlement before the bankruptcy petition is due to be heard. Trying to do so after the bankruptcy order is made is both difficult and expensive.

How does Bankruptcy affect me?

With Bankruptcy comes some serious implications. Some of these are detailed below.

It is advertised in the local press
If you are a renter, your landlord will find out
In some occupations your employment may be at risk. i.e. You cannot be a company director, you may not practise as an Accountant/Lawyer/Justice of the Peace/Member of Parliament, you cannot take part in the promotion, formation or management of a limited company (LTD) without permission from the court.
You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
You lose control of your assets.
You cannot obtain credit for over £250 without the permission from the lender.
Your credit is affected for many years after the annulment.
You may be publicly examined in court.

Advantages of Bankruptcy

For the person involved, bankruptcy provides relative peace of mind
You could be discharged after one year (or less in some cases).
For the creditors, bankruptcy allows a full investigation of the debtor's affairs to be carried out.

What are my alternatives to Bankruptcy?

People think Bankruptcy is the only choice when it comes to dealing with their debts, but there are many other solutions in todays current market.

You could negotiate payments with your creditors and arrange an informal agreement or use a Debt Management Company where you pay back your debts at an affordable monthly repayment.
Depending on your circumstances, you could qualify for an IVA; a legally binding agreement between you and your creditors, which enables you to pay back a portion of the debt you owe and have the rest written off.

How long does Bankruptcy last?

Bankruptcy has changed a lot over the years. Currently, the time for being discharged from your Bankruptcy is after a maximum period of 12months. After this time, you will no longer be bankrupt. The length of time of a Bankruptcy can be altered in some circumstances.
When you have finished your Bankruptcy, it is important to remember that the effects of Bankruptcy extend far further than just one year. i.e. your credit rating will be affected for many years.

Will people know I am Bankrupt

People may find out. Bankruptcy Orders are advertised in the London Gazette and also in your local newspaper. Your details will be placed on a Bankruptcy Register which is maintained by the Department of Trade & Industry and The Insolvency Service. The Register is a public document and can be viewed by the public on the internet.

Anyone who you have been involved with financially will be informed of your Bankruptcy. This includes, Banks, Building Societies, Mortgage Companies, Loan Companies, HP Companies, Your Landlord, Creditors and any Pension and Insurance Companies.

Debt Solutions (UK and N Ireland)

Administration Order
(also available for residents of Scotland)

An administration Order is an order by the court. It covers your outstanding debts. You would make monthly payments to the court who then distributes it to your creditors on a Pro-Rata basis.
read more about Administration Orders...

Bankruptcy

Bankruptcy offers a fresh start for people who are unable to pay their debts in any way possible. It is known as a 'last resort' in Debt Solutions, but sometimes it is the best option available. As with any debt solution, it is not something to be entered into lightly.
Bankruptcy...

Debt Management Plan
(also available for residents of Scotland)

A Debt Management Plan is an informal agreement with your creditors where you arrange a more affordable monthly payment to repay your debts.
Debt Management...

IVAs

An IVA is a legal agreement between you and your creditors where you agree to pay back only a portion of your debt that you can afford.
IVAs...

Talk to our debt advisors at Debt Advice and we will see if we can help in any way.

Call our debt helpline on
0844 56789 44.

Debt Solutions (Scotland)

Sequestration
(Scottish equivalent to Bankruptcy)

Sequestration is the scottish legal term for Bankruptcy. It is a method of dealing with debts that you cannot afford to pay.
read more about Sequestration...

Trust Deed
(Scottish Equivalent to the IVA)

A Trust Deed, like an IVA, is a formal agreement between you and your creditors, where you arrange to pay back the portion of your debt that you can afford.
read more about Trust Deeds...

If you need debt help immediately please do not hesitate to contact our debt counsellors on 0844 56789 44. We are on hand with a sympathetic ear, so please don’t hesitate to give us a call, email, online chat. A problem shared is a problem halved and it’s our job at Debt Advice to listen, talk or help.