What is bankruptcy?

Bankruptcy is one way of dealing with debts that you cannot pay. Anyone can go bankrupt. Or you can be made bankrupt by someone that you owe £750 or more to.

Bankruptcy orders are usually made in a local County Court or at the High Court in London.

Is it a good thing?

It can be. If you owe money that you cannot afford to pay, bankruptcy may be a way of making a fresh start. The court will appoint an Official Receiver or an insolvency practitioner to act as trustee of your financial affairs. The trustee will deal with all the creditors (people you owe money to).

Are there any disadvantages?

Yes. While you are bankrupt there are some jobs that you cannot do. Also, you cannot take out credit of £250 or more without telling the creditor about your bankruptcy.

If you have a bank account it will be frozen by the trustee, although the bank may let you open a new basic bank account once the trustee has checked everything. Most banks will not let you have a cheque book or overdraft if you are bankrupt.

You cannot promote, form or manage a company without the court’s permission, and you cannot carry on a business in a different name from the one in which you were made bankrupt without telling people that you do business with.

How long will the bankruptcy last?

Under current laws, most first-time bankruptcies used to last for 2 or 3 years but from 1st April 2004 there is a new law which limits first-time bankruptcies to 1 year.

Does it cost anything to go bankrupt?

Yes. There is a court fee of £140 and you have to pay a deposit of £250. The fee and deposit have to paid in cash or by bankers draft when you apply for bankruptcy. If you are on state benefits you may not have to pay the fee.

Will I have to pay anything to my creditors?

The court may order you to make payments to your creditors. The court will look at how much money you have coming in and how much you have to pay out for your regular living expenses and will decide whether you can afford to make payments. From 1st April the court can order you to make payments for up to 3 years after your bankruptcy ends.

Will I still owe any money when the bankruptcy ends?

Some debts will still have to be paid. These include:
 

What about my house?

If you own a house or other property, the trustee may decide to sell it to raise money to pay your debts. If you own it jointly with someone else then the trustee can only take your share.

If your house is mortgaged the trustee may decide not to sell it now, because the sale will only make enough money to pay off the mortgage. But the trustee can apply for a charging order which means that the house can be sold in the future.

If you own your hose you should always ask for advice before going bankrupt.

If you owe the mortgage company money, they can ask the court for possession which allows them to sell the house. This is quite separate from any bankruptcy proceedings. Always ask for advice if you have mortgage arrears or if your mortgage lender is threatening re-possession.

What is a Bankruptcy Restriction Order?

Under the new laws, the court can make a Bankruptcy Restriction Order (BRO) which lasts for between two and 15 years. A BRO places restrictions on the bankrupt person, for example if applying for credit of more than £500 the person must tell the lender about the BRO.

The court is likely to make a BRO if the bankrupt has not co-operated with the Official Receiver for instance by trying to hide or dispose of assets, or if someone has taken out debts irresponsibly or dishonestly.

How do I go bankrupt?

You can get the forms to apply for a bankruptcy order from any county court. The court will tell you when to attend to see the District Judge who will make the order. The court will also arrange for you to see the Official Receiver. The CAB can help you to fill in the forms (see end for contact details).

The local court is at:
 

Will anyone know that I am bankrupt?

Details of people who have been made bankrupt or who are subject to a BRO are kept on the Individual Insolvency Register. The details used to be kept for up to two years after discharge but after 1 April 2004 they will be kept for only three months after the bankruptcy ends.

The bankruptcy order may be published in a local people.

But remember - lots of people go bankrupt every year and there is no longer the same stigma attached.

Will I be able to get credit again after my bankruptcy?

There is nothing to stop you getting credit in the future but it may not always be easy. You may find it difficult to get a mortgage, especially if you owned a house which was sold because of debts.

Also, there are different rules for people who go bankrupt for a second or third time.

If you think that you may need credit in the future you should think carefully before going bankrupt.

Are there other ways of dealing with debt?

Yes. You may be able to make reduced payments to creditors and pay your debts off over a longer period. Some creditors will freeze interest and other charges to make it easier to clear the debts.

Or you can apply for an Individual Voluntary Arrangement which is a formal agreement to pay a reduced amount.

If you owe less than £5,000 and have a County Court Judgement (CCJ) you can apply to the court for an Administration order. The court will administer your debts which will stop creditors contacting you for payments.

Or, if you can raise a lump sum, you may be able to arrange to pay one-off reduced amounts to clear the debts.

How can I find out more?

If you would like more information about bankruptcy you can contact the Citizens Advice Bureau:

• Send an enquiry form
• Telephone 0151 357 3853 to make an appointment