DebtOptions

How do people go bankrupt?

A creditor submits a bankruptcy petition in the hope of recovering the debts that are owed to them. The debtor is then declared bankrupt.

Can I declare myself bankrupt?

Yes. You can submit your own bankruptcy petition if you wish. However, it’s important to understand all the negative consequences of bankruptcy on your finances, assets and reputation. Going bankrupt is very serious and will almost certainly change your life forever.

What happens once I’m declared bankrupt?

A Trustee, appointed by the court, takes your assets into their control and divides them up in order to realise the maximum return for your creditors under your bankruptcy.

Can I lose my house?

Yes. Your house is one of the assets that can be liquidated (sold) as part of your bankruptcy, and the proceeds used to pay your creditors. However, this can be delayed until the end of the first year of bankruptcy in order to allow those living with you to find new accommodation.

In some circumstances, your spouse or another relative or friend may be able to buy your interest in your home, in order to prevent it being sold. Other assets such as life insurance policies and possibly pensions can also be liquidated.

Can I lose my business?

Yes. If you own a business, if can be immediately closed and any employees dismissed.

What if I come into money during the bankruptcy?

Assets you acquire during your bankruptcy can be used to pay creditors. This includes inheritances, insurance settlements and increased equity in your home.

Is it expensive?

You have to pay a total of £510: £150 to the court and £360 to the official receiver. Both these fees must be paid in advance.

Is it time-consuming?

Yes. You will have to fill in many forms, and attend a long meeting with the Official Receiver or your Trustee. Your financial affairs will be thoroughly investigated as part of your bankruptcy.

Will people find out that I’m bankrupt?

Bankruptcies are made public, so there is a chance that people will discover you are bankrupt. You are likely to lose status in professional and business terms, and/or find it more difficult to find work.

Can bankruptcy be reversed?

Yes, in certain circumstances. If the bankruptcy order should not have been made, or if the correct procedure has not been followed, the order can be reversed. Bankruptcy can also be reversed if you pay off all your debts and fees, or if you reach an agreement with your creditors as part of an IVA - Individual Voluntary Agreement.

Are there any alternatives?

Yes. An IVA, Debt Management Plan or if you are in Scotland, a Trust Deed, may be preferable to bankruptcy. If your creditors accept them, these alternatives involve paying back whatever you can afford each month for a set period, usually five years. Creditors sometimes prefer this if they believe they will get more money back than if you were declared bankrupt.