A Simple Guide to Going Bankrupt
Is bankruptcy for me?
I owe less than £5,000 and have a court judgment
You should first consider applying to the court for an Administration Order. This allows you to pay one amount into the court which then manages the payments to the people you owe money to (your "creditors.") There is no up front fee.
I own assets of significant value, or can make significant regular payments from my income
You should first consider the option of setting up an Individual Voluntary Arrangement with your creditors. This can be based on an offer made from money you have coming in, or from money you make by selling something you own (an "asset"). If you live in Manchester you can phone for debt advice from Manchester Advice on 234 5678.
Bankruptcy: the Basics
What happens to my debts when I go bankrupt?
You stop paying most of the people you owe money to. They must deal with the "trustee", the official who is appointed to sort out your finances. You must still pay the following debts:
- fines, maintenance orders, child support and student loans from the Student Loan Company
- payments on mortgages and loans secured on your home. If you don't keep paying these, your lender can take you to court to take your home
- any debts you take on after you have been made bankrupt
- social security debts can still be deducted from benefits
Although money you owe is included in the bankruptcy, you must still keep paying your current rent, ongoing fuel and water charges etc.
How long will I remain bankrupt for?
Normally for one year, however some people will be bankrupt for longer if they are subject to a Bankruptcy Restriction Order. These orders are explained below. Some straightforward cases may be discharged in less than a year.
Who will deal with my bankruptcy?
Your bankruptcy is dealt with by a "trustee". If you have few assets, the local Official Receiver's office will act as trustee. Otherwise, a private trustee (usually a solicitor or accountant) will act as trustee.
Doesn't bankruptcy mean I will lose everything?
No. You can normally keep the following items:
- tools, books, vehicles or equipment needed for your work
- clothing, bedding, furniture or essential household equipment
In practice, you are unlikely to have any other household items taken from your home unless their resale value is particularly high.
Bankruptcy and Your Home
If I own my own home will I lose it?
If you own your home then it can be sold if there is "equity" in it. Equity is the difference between your home's value and the total you owe on mortgages on it. If you are a joint owner, the trustee can still force you to sell the home but cannot claim the other person's share (usually half) of the equity.
When is my home likely to be sold?
The home will only be sold if your share of the equity in the house is enough to cover the costs of the sale, to pay the trustees costs and also to pay something to your creditors. Even if there is equity, you will normally be allowed to stay for a year whilst you find somewhere else to live.
What if there is little or no equity in my home at present?
The Trustee or receiver has only three years from the date you're made bankrupt to deal with their interest in the property. This can mean selling their interest, applying for an order for sale, applying for a charging order or making an arrangement with you. If a charging order is made, this could mean that your home would still be at risk after the three year period is up.
Can I stop the trustee selling my home?
Yes. A joint owner, relative or friend can make the trustee an offer to buy out your share of the equity to avoid a sale.
What if I rent my home?
The trustee usually has no interest in your home and cannot sell it, so the homes of most tenants are not at risk. Some tenancies - mostly private ones - have terms that could lead to bankrupt tenants losing their home. If you owe rent, you may still have to pay what you owe, depending on the type of tenancy and the landlord's policy. Check your tenancy agreement, and always get advice first.
While you are bankrupt
What sort of things can't I do while I'm bankrupt?
- You can't get credit over £500 without declaring you are bankrupt
- You must not make payments direct to your creditors without permission
- You can't be a director of a limited company without permission
- You can't hold public offices like local councillor or school governor
What is a Bankruptcy Restriction Order (BRO)?
Some actions of debtors can lead to a penalty in the form of a BRO. The most common examples are listed below (this is not a complete list). Get advice if you are worried about any particular problem.
- Failing to cooperate with the official receiver
- Giving away property or selling it for less than it is worth to avoid it being included in the bankruptcy
- Failing to supply goods or services that someone has paid you for
- Running up debts by gambling (or speculation)
- Taking credit with no reasonable expectation of being able to repay it.
If a BRO is made, it will last for between 2 and 15 years, and the effect is to extend the restriction on taking out credit and being a company director for this period.
Applying to Go Bankrupt
How do I apply for my own bankruptcy?
Application forms are available from your local County Court. Complete the forms and take them to the court, where you will be asked to swear that everything you've written is true. There is then a short hearing in the judge's room, not in open court. The judge will make you bankrupt unless s/he thinks you have some better option.
How much does it cost to make myself bankrupt?
£495 in cash (from 5 April 2008). This includes a court fee of £150, which you won't have to pay if you can show you are getting one of the following you won't have to pay the court fee.
- Income Support or Jobseeker's Allowance (Income Based) or
- the guarantee part of Pension Credit or
- If you receive Working Tax Credit but you do not receive Child Tax Credit or
- Income-related Employment and Support Allowance
You will have to fill in a form and give details of your income and main bills.
What happens after the court makes me bankrupt?
An appointment is made for you to see an examiner at the local Official Receiver's office. You will be sent a questionnaire to fill in and take to the appointment. It asks for details about your financial affairs.
What sort of questions will the examiner ask me?
- How did you got into debt and when did you take on each debt?
- What was the money borrowed for and what did you do with it?
- If you bought anything, where is it now?
- If you sold anything, who did you sell it to and for how much?
- What did you do with the money you got from selling it?
Need more help? Live in Manchester? Send us an email
Information Provider:
Manchester Advice
Date Reviewed:
17 November 2008
FeedbackDid you find this page useful? Yes or No