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Debt solutions

27th May 2024 · 5 minute read

Published by The Real Debt Guy

  • Token payment method
  • Debt
  • Bankruptcy
  • Insolvency
  • Managing debt

Everything you need to know about Bankruptcy.

Setting the facts straight on Bankruptcy

Over the years we have spoke to people who have become so consumed by their debt, both emotionally and financially that bankruptcy has felt like their only option. Their money problems became too big to see a way out and their state of mind too fragile to cope. The scary thing is that many of those who have shared their story with us and have entered into bankruptcy didn’t know what it actually meant, or how it would impact them for years to come. If you're thinking of going bankrupt, do make sure you've done your research.

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To help get you started, we want to share some key facts about bankruptcy that are easy to understand, giving you as much information as possible. So, let’s take a closer look at the details of bankruptcy and get the facts straight.

Am I eligible for Bankruptcy?

To begin with, here are the main scenarios to be eligible for bankruptcy:

  • YOU CAN’T PAY YOUR DEBT: If you can’t pay off your debts you can make yourself bankrupt at any time for a fee of £680.
  • YOU OWE A CREDITOR £5,000: Your creditors can apply for your bankruptcy if you owe them £5,000 or more. However, they will need to go through a process to make you bankrupt.
  • YOU BREAK YOUR IVA TERMS: If you are in an Individual Voluntary Arrangement* (IVA) and you break the terms of the IVA, your creditors can make you bankrupt, via an Insolvency Practitioner.

*An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors, to pay back your debts over an agreed period. (Check out our article ‘The truth about Individual Voluntary Arrangements (IVAs)’)

It’s time to get to know the facts to help make an informed decision.

What is the Self Bankruptcy process?

Before you decide that Self Bankruptcy is the way to go, it’s really important you have a full understanding of the process both from a financial perspective and to prepare yourself mentally.

Step 1 – The Official Receiver interview

When you apply for bankruptcy, you will be contacted by the Official Receiver and asked to attend an interview. An Official Receiver works on behalf of the Insolvency Service but is also an officer of the court. In the interview, you will be asked questions to help them determine why you are applying for bankruptcy and the assets you have.

It’s important that you fully disclose everything in this interview. If the official receiver suspects you’re hiding any information or details of assets you could face a court examination.

Step 2 – Handing over your assets

The next step involves handing over all your assets to either an Official Receiver or an Insolvency Practitioner, depending on your situation. They will then become the trustee of your assets, such as your bank accounts, your house, or any other eligible assets that you may possess. It’s important to note that you may lose control of your assets completely to the trustee. However, you are usually allowed to keep items you need for your job like tools or vehicles and general household items like bedding, sofas, a table and chairs. However, if these items are worth more than a good replacement you may not be able to keep them

Step 3 – Freezing your finances

Finally, all your finances will be frozen. You’ll be asked to handover your bank cards, cheque books and credit cards to the Official Receiver and your bank accounts will be frozen. Any money you need urgently to survive such as for food may be released by the trustee.

If you have a joint account, your partners share of the money may be released but your share will remain frozen. Please be aware joint bank accounts can get very complicated when it comes to proving the share amount. If you do choose to take the Bankruptcy route, it’s wise to address the joint account situation prior to Bankruptcy. It’s also important to note any pensions you have could be classed as income and incorporated into the Bankruptcy process.

Step 4 – The Insolvency Register

Finally you’ll be put on an Insolvency Register. This is a public register meaning anyone can access it and see you have been made bankrupt. You might think at this point it can’t get any worse but at least you don’t have that huge debt, right?

Step 5 - Not all debts are included

It’s important to note that not all of your debts will be written off if you make yourself, or you are made bankrupt. Some of the following debts may not be included:

  • Court fines
  • Social fund loans
  • Other court debts
  • Student loans from the ‘Student Loan Company’
  • Child support and maintenance, as well as other costs or payments arising from family proceedings (in some cases you may be exempt from having to make these payments)
  • Debts arising from fraud and personal injuries damages that you may have been ordered to pay to someone unless otherwise approved by a judge

As well as all the above, secured creditors like your mortgage company will still need to be paid directly by you, until further notice from the Official Receiver. With bankruptcy you are not 100% free from your debt. This is a common misconception and one that must be stressed.

It's a tough thing to go through. The process of bankruptcy is personal and intrusive, and it can be very distressing for you and those around you. You might think once you become bankrupt it’s all over. However, it’s only really the start, as next you’ll have to adapt to the impacts of the related restrictions that come with bankruptcy.

Restrictions during bankruptcy

When you think you haven’t been through enough already, there are several restrictions that will be placed upon you for the duration of your bankruptcy:

  • You cannot borrow more than £500 from anyone without telling them you are bankrupt.
  • You cannot act as a director of a company without the court’s permission.
  • You cannot create, manage, or promote a company without the court’s permission.
  • You cannot manage a business using a different name without telling the people you are doing business with, that you have been made bankrupt.
  • You cannot work as an Insolvency Practitioner (because I’m sure that’s your dream job?!)
  • Your bank account and assets could remain frozen for this period.

The restrictions will remain in place until your bankruptcy ends, usually 12 months from the date you were made bankrupt. In most cases, after the 12 months you will be discharged from your bankruptcy. However, if you don’t cooperate, or you break any of the restrictions, or if undisclosed assets are discovered, this could be extended.

Once discharged, you will continue to deal with the long-term effect on your ability to obtain credit or anything that requires a credit check for a minimum of 6 years, sometimes longer. This can include things like phone contracts, car insurance, utility bills and even renting a property, making it very difficult to get your life back on track.

Don't forget to read The Real Debt Guy's final thoughts below!

The information in this article is considered to be true and correct at the date of publication.

The Real Debt Guy's final thoughts.

You don’t have to make yourself bankrupt

You might read this and think, what do you mean ‘I don’t have to make myself bankrupt? My financial situation is out of control, I have no other option!’ Maybe you do? We don’t believe your debt should ever drive you to make yourself bankrupt. In our opinion, there are better options for you to manage your debt for you to explore. If a creditor is threatening to make you bankrupt, don’t do it for them. Save yourself the £680.

If you do decide you want to make yourself bankrupt, it is not a decision you should take without fully understanding the repercussions to your life and exploring all other options. If you have unsecured debts and you want to take back control, take a look at the Token Payment Method. Bankruptcy isn’t the last option to explore, there are routes that could impact you far less and set you back on the road to financial recovery and a better life.

Finally, never seek advice from anyone who may financially benefit from you making yourself bankrupt. They do not have your best interests or wellbeing at heart.

Simplifying complicated matters.

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