If you can’t pay your personal debts and you don’t feel that any other form of relief is suitable, the ultimate solution is bankruptcy.
Whilst the idea of wiping out debts may seem appealing, there are various restrictions to consider and it’s always best to seek advice from sources such as Citizen’s Advice Bureaux or Money Advice Service before taking this drastic step.
Filing the petition
The first step to bankruptcy is the filing of the petition, statement of affairs and the relevant fees. You’ll need to file 3 copies of the petition at the relevant court (you usually file the petition in your local county court). This must be done in person, but if you live or work in London and your debts are less than £100,000, you file the petition in the Central London County Court.
There are specific circumstances that mean you must file the petition, in the High Court at the Rolls Building. These are:
- You live or trade in London and you owe more than £100,000, or
- You’re not an English or Welsh resident and you haven’t lived or carried out business in England and Wales during the last 6 months, or
- You’re a member of a partnership that’s being wound up in the High Court, or
- You have an IVA and your IP has submitted their report to the High Court.
What happens next?
Once the petition is filed you’ll be told when your bankruptcy hearing is to take place. At the hearing the court will make the bankruptcy order – you’ll be bankrupt and a trustee in bankruptcy will be appointed.
Within 2 weeks of your bankruptcy, the official receiver will contact you via post with various questions. Your answers will be used to draft the report sent to your creditors. You may well be asked to attend an interview and it’s key to be honest and cooperate with the official receiver.
What happens to your assets?
Upon your bankruptcy your assets including your house, income and bank accounts must be provided to your trustee. They’ll decide whether to sell or retain them. Whilst you’re allowed to hold on to tools, essential household items and money to live on, other non-essential items are sold to release funds to clear your debt.
When you’re made bankrupt the court has the right to impose various restrictions on you during the term of bankruptcy. It’s a criminal offence to break the restrictions, listed below:
- Inability to borrow more than £500 without telling the lender you’re bankrupt
- Inability to act as a director of a company without the permission of the court
- Inability to create, manage or promote a company without the court’s permission
- Inability to manage a business with a different name without telling people you do business with that you’re bankrupt
- Inability to work as an insolvency practitioner.
Cancelling your bankruptcy
There are various times at which you can cancel your bankruptcy, these include repaying your debts in full, being wrongly made bankrupt or entering an IVA to repay your debts. In order to cancel your bankruptcy you need to complete and file Form IAA. If you’ve fulfilled your obligations and the court is satisfied, you’ll be awarded an annulment order.
Ending your bankruptcy
Your bankruptcy will end when you’re officially discharged. This is normally 12 months after being made bankrupt. However, this can be extended at the discretion of the trustee. Discharge is usually automatic and if you require proof, you’ll need to contact the official receiver for a certificate of discharge. This is done via Form LOC013.
For more advice of managing debt check out our other helpful articles.