Bankruptcy can be an effective way to deal with your debts but there are advantages and disadvantages. If you have any queries, please contact us for advice before proceeding with going bankrupt.
Bankruptcy is a legally binding form of insolvency processed through the courts for people who can’t afford to repay their debts. Through bankruptcy you can relieve yourself from the majority of your debts – but it can have long-term repercussions.
If your debts are greater than £5,000, you can voluntarily declare yourself bankrupt or a creditor can make you involuntarily bankrupt. Bankruptcy may be suitable for you if you are unable to repay your unsecured debts in a reasonable time. Once declared bankrupt the Official Receivers Office will handle the affairs of your bankruptcy and you must co-operate with them. You will usually be discharged from bankruptcy - free from its restrictions and conditions - one year from the date of the declaration being made. You cannot leave the jurisdiction of Northern Ireland without permission of the court during the discharge period of one year.
Bankruptcy should be seen as a last resort, it may have an effect on your employment and could impact your ability to obtain financial products in the future. When you are bankrupt you must also agree to any attached conditions including surrendering any assets you own to be assessed by the Official Receiver. You will lose access to your current bank accounts and will be unable to access almost all forms of credit and your credit rating will be severely impacted for up to six years. If you are director of any companies, you will have to resign.
To declare yourself bankrupt in Northern Ireland, you must meet the following criteria:
- You must be a resident of Northern Ireland, England or Wales.
- You must prove to the court that you are unable to pay your debts as they fall due and that this situation is unlikely to improve in the future.
- Any creditor that you owe unsecured debt to of over £5,000 can present a creditor’s petition against you to make you bankrupt. Before presenting a bankruptcy petition, the best practice is that a creditor must firstly send you a statutory demand for the debt.
- A statutory demand is a pre-court form that requires you to either:
- pay the demanded amount
- offer to secure the debt against any property you own (create a voluntary charge)
- offer to pay the debt in a way that is satisfactory to the creditor (such as payment instalments)
- Once a creditor has issued a Statutory Demand this should be taken very seriously. You have up to 18 days to ask for it be set aside.If you do not dispute you owe the money you can still come to an arrangement to pay the debt.
- A statutory demand is a pre-court form that requires you to either:
- You must pay a Bankruptcy fee.
- As of May 2020, the Bankruptcy fee for presenting a Statement of Affairs (Form 6.31) is £525, this can be completed online. An Affidavit must be witnessed by a solicitor who will usually charge £7.00.The Affidavit and the Debtors petition (Form 6.30) must be handed into the High Court. The fee for the debtors’ petition is £151.00. If you are on benefits or a low income the debtors petition fee may be waived.
You can include most types of debt in your bankruptcy. However, debts you cannot include are listed below and you will still be liable to pay after your bankruptcy order is made:
- Magistrate or High Court fines
- Money owed under a Criminal Confiscation Order
- Student Loans
- Child Support Agency or Child Maintenance Service arrears
- Budgeting loans, social fund loans or crisis loans
- Any debt that has arisen from a personal injury claim against you
- Any debt that has arisen from committing fraud
If you include rent arrears in your bankruptcy, your landlord can still take steps to evict you as you have broken the terms of the rental agreement. However, all rent arrears up to the date of your bankruptcy will be cleared.
If you are self-employed or have been trading you may also include debts in your bankruptcy incurred through your business. However, including these debts could end your relationship with creditors if you want to continue to trade and you will need to use their services in the future.
All debts you include in your bankruptcy are settled up to the date the bankruptcy order is made by the court. It is important to continue to pay all priority expenses such as mortgage or rent, utilities and rates from the bankruptcy order date onwards as normal. If you are unsure if you should continue to pay a bill after the bankruptcy order date, contact one of our advisers
You will have to detail all your current bank or building society accounts on your bankruptcy application. You will lose access to these accounts as they will all be frozen once the bankruptcy order is agreed by the court.
You should take steps to open a new basic bank account with no credit facilities immediately after the date of your bankruptcy order - if you open it before that date it will also be frozen with your other accounts. It is recommended you should open this account with a bank with which you have not included debt in your bankruptcy. You must tell the bank or building society that you are bankrupt if they ask - it’s up to the bank to decide if you can open an account with them.
If you have a vehicle on hire-purchase, you must check if there is a clause in the agreement that allows the hire purchase company to terminate the agreement if you become bankrupt. If there are no arrears, the company may allow a third party make the payments during the discharge period. If you are in arrears to the hire-purchase company, they will usually terminate the agreement and demand return of the vehicle. Any subsequent shortfall owing under the agreement will also be settled in the bankruptcy.
If there is no bankruptcy clause in the agreement and the HP agreement is to end during the term of the bankruptcy and the car is over £3,000 in value the Official Receiver may take the car, sell it but give you an amount to purchase a cheaper car.
Once adjudicated bankrupt the Official Receive will take control of all of your assets. The person who deals with your assets in bankruptcy is known as the Trustee, the Trustee can be either the Official Receiver themselves or a separate insolvency practitioner.
The Official Receiver will assess your income and consider essential expenses such as mortgage, rent and household bills. After all of your expenses and outgoings are paid and there is a surplus from your income the surplus will be paid to the Official Receiver for three years. This is known as an Income Related Payments Order (IPO)
If your circumstances change during this time you must inform the Official Receiver so the Order can be reassessed.
Assets consist of something of value that can be sold.
Certain goods are not treated as assets. These include normal household items and any tools or equipment needed for you to continue to work. Your car could be sold if its value is in excess of £3,000, but this depends on how necessary it is for your employment or if it is essential to meet the basic domestic needs of you and your family.
If you have a personal or workplace pension fund that you have claimed and are in receipt of, the Official Receiver will look at the monthly income you receive and take this into account when deciding on an Income Payment Order. Most personal and occupational pensions should be unaffected by bankruptcy.
If you rent your home and you petition for bankrupt this may affect your tenancy agreement and the landlord may issue an eviction notice. If you have arrears on the home these will be cleared in the bankruptcy. However, if a creditor makes you bankrupt and you have no arrears the landlord may allow you to continue as a tenant.
If you have own your home and there is equity the Official Receiver will expect this equity be released. If jointly owned your partner will be offered to buy out your 50% share of the property. Or it can be offered to a third party.
It is very important you seek advice.
The Official Receiver or trustee has a maximum of three years from the date of your bankruptcy to deal with your home.
If you have an investment property or are named on multiple properties you will need specific advice – one of our debt advisers will be able to provide this to you.
Credit reference agencies record any information – including bankruptcy - regarding your finances for six years on your credit report.
Even after this time you may be asked if you have ever been declared bankrupt when applying for
If you have a debt in joint names with someone else you will be cleared of the debt in bankruptcy, however, the other person is still liable for the full debt. If you agreed to be a guarantor for someone this cannot be included in the bankruptcy as you are not liable to pay the debt until the other person fails to make payment and the creditor then asks you a guarantor to pay.
Any amount of debt can be included in a bankruptcy. There is no maximum.
- Bankruptcy normally lasts only 12 months before you are discharged
- Once are discharged from bankruptcy your unsecured debt is written off – you won’t have to pay it.
- You can retain all your reasonable household and personal possessions such as electrical goods, furniture, clothes and mobile phone.
- You will not have to deal with creditors any longer
- You could lose your home
- You could be asked to sell or trade down your car
- Any surplus income you receive over the next three years must be paid into the bankruptcy.
- Your employment or membership of any professional bodies required for your job could be at risk. If you belong to a professional body which does not allow you to be bankrupt, such as solicitors or accountants, you could be struck off.
- You will be unable to act as a company director or be involved with the management of a limited company without permission from the Official Receiver while you are bankrupt
- You are not allowed to obtain credit of £500 or more without telling the lender you are bankrupt
- Details of your bankruptcy are published in the trade paper The Belfast Gazette and The Belfast Telegraph
- Details of your bankruptcy will be shown on your credit report for six years
- Your name will remain on the Insolvency Register for three months after the date of your discharge from bankruptcy
- You must obtain official consent if you wish to travel outside of Northern Ireland until you are discharged from bankruptcy
We can give you free impartial advice. If you decide that bankruptcy is the best option, our advisers can begin the process of completing the forms required with you and in the interim contact your creditors to place your accounts on hold until the bankruptcy order is made.
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Bankruptcy can be an effective way to deal with your debts but there are advantages and disadvantages. Find out about the process and how to get advice.