The bankruptcy process explained

You can apply for bankruptcy yourself, or your creditors can apply if you owe them more than £5,000. If your Individual Voluntary Arrangement (IVA) fails, your Insolvency Practitioner can also apply for your bankruptcy.

An upfront fee of £680 is required to file for bankruptcy. However, help could be available through a grant if you are unable to afford this. This can also be paid in instalments.

Residents of England and Wales must apply for bankruptcy online, which you can do here. Northern Ireland residents apply through the courts; the forms are available from the High Court in Belfast or the Insolvency Service.

If a creditor applies for your bankruptcy, you will receive a copy of the petition. You can stop the bankruptcy but must guarantee to the court that the debt will be paid. At this point, some people apply for an IVA instead, as this will stop the bankruptcy process.

Once approved for bankruptcy, you will stop dealing with the creditors included in your bankruptcy and making payments, and they will be unable to take any legal action against you. A Trustee will be appointed, which will be an Official Receiver or Insolvency Practitioner.

They will discuss your finances and assets with you to investigate how you can make any contributions to your debt. You must co-operate with the Trustee, giving them any information they need. They will deal with your non-essential assets to clear as much of your debt as possible.

If your Trustee deems that you have leftover income each month and can afford regular payments into bankruptcy, they may also apply for an Income Payment Order (IPO) to take regular payments from you, which can be done without your permission.

You wouldn’t be expected to make payments if you just receive state benefits.

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How your assets are considered in bankruptcy

Any asset which is considered non-essential can be sold by your trustee. These can include:

• Your home – this will depend on the value of your home and whether the property is worth more than the outstanding mortgage and any loans secured against it.
• Your vehicle – if any vehicle you own is worth more than £2,000, it is likely to be sold, and the money raised is used to pay off your debt. If you need a vehicle for your work or business, you may be permitted to retain some of the funds to buy a cheaper car.

Any item you need to meet your basic domestic needs is classified as ‘essential’ and will not be considered in your bankruptcy.

These can include:

• Clothes
• Bedding
• Furniture
• White goods, such as fridges and washing machines
• Vehicles held on finance may be repossessed by the finance company, or the payment might not be allowed by the trustee

However, if any of these items are deemed of excess value, they may be sold, and a proportion of the funds may be given to you so you can purchase a cheaper replacement.

Bankruptcy usually lasts for 12 months, after which time any remaining debts are written off. If you made an income payment arrangement with your Trustee, however, you will be required to continue to make these payments, for up to three years. Your credit report will show your bankruptcy for six years from when it’s approved.

For more information about the bankruptcy process, visit the government website.

For expert advice on alternative debt solutions that may be available to you, call US FREE on 0808 278 3071. We are open from 8am to 8pm Monday to Friday, and 9am to 3pm on Saturday. Alternatively, complete our enquiry form and we will be in touch as soon as possible.

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