What happens when you become bankrupt?
If you are currently experiencing serious financial problems, your thoughts may have turned to bankruptcy. Making yourself bankrupt isn’t a step that should be taken lightly, so it’s wise to spend time reading up on the topic so you have a firm understanding of the implications attached.
Bankruptcy normally lasts for a year and is used to clear debts you are currently unable to pay. You may find yourself settling some debts with non-essential assets including property and possessions that you don’t require to survive. Once the bankruptcy period is over, most remaining debts will be ‘discharged’ or cancelled. Though you can choose to file for bankruptcy yourself, others can make you bankrupt if you owe money to them.
You must owe at least £5,000 to become bankrupt. You can apply to make yourself bankrupt if you don’t have the money you need to settle your debts. The application will be assessed by an adjudicator who will decide if you can become bankrupt. You will also need to pay a fee to make yourself bankrupt, which you can pay in instalments, though the application won’t be processed until you have paid in full. You should receive a decision within 28 days.
Once a bankruptcy order is issued, your estate will be received and managed by the Official Receiver, who could pass management of the case over to a licenced insolvency practitioner. Bankruptcy can clear you of various debts, but you will still be liable to pay things like maintenance, criminal law liabilities like fines and student loans. If you have been bankrupt before, it could take more than a year to be discharged. You may not need to make any payments unless an income payment order is issued.
There are some downsides you need to be aware of. For instance, people are likely to find out about your bankruptcy as it will be made public. If you own a business, it could be closed down, with staff needing new employment, and you could lose your home if your partner cannot buy your share of the property. Any assets you gain during the bankruptcy like insurance settlements and PPI claims will be lost, and your landlord could terminate your tenancy if you live in a rental property. All of your bank, credit card and building societies accounts will normally be closed, though you may be able to keep one bank account open so you can pay bills.
If you have any items leased or purchased via Hire Purchase, you may need to hand these back. Your bankruptcy will also stay on your credit report for six years, so you could find it hard to borrow money for a considerable period of time once you have been discharged. You will also see bankruptcy fees added to your debts, and you won’t be able to take on roles such as councillor, MP or company director.
Get in touch with Irwin and Company today on 0800 2545122 to find out more about the bankruptcy process.