Bankruptcy

Bankruptcy is a solution to dealing with debts that you cannot pay, where your debts are written off after a set period of time – this period is usually one year.

If you have assets while you are bankrupt, these may be used to pay off your debts. Assets can be anything that are not essential household items to meet domestic or employment needs – so would not include bedding or clothing but may include your car.

• Your debts will be entirely written off, allowing you to start afresh.
• Small businesses with little or no assets may be allowed to continue trading.
• Through Bankruptcy there are measures in place to ensure that yours and your family’s well-being and employment can be protected.
• You may be exempt from or entitled to a reduction on bankruptcy fees if you are on a low income or benefits.
• If you are able to come to an agreement with the official receiver, you may be discharged from Bankruptcy early.
• You may be able to apply for Bankruptcy in the UK even if you live abroad.
• If you have assets while you are bankrupt, these may be used to pay off your debts. Assets can be anything that are not essential household items to meet domestic or employment needs – so would not include bedding or clothing but may include your car.

• You will have to close your bank or building society account, and they will be able to decide whether you can open another account with them in the future.
• Your credit rating will be affected – information will be retained by credit agencies after the bankruptcy period has ended.
• Some suppliers will require you to pay deposits on their services – e.g. electricity, for which you may need to ask a friend or partner to transfer money.
• Your employment may be affected – check your terms and conditions of employment when considering bankruptcy.
• During the bankruptcy period you will not be able to obtain credit without telling the lender you are bankrupt or set up a new business.

Filing for bankruptcy is easier than most people may believe. There are two ways to be made bankrupt – either by filing for your own petition, or through your creditors. This can be done for you, please enter your details into the form on this page and a trained advisor will be happy to call you with the best advice.

If the official receiver decides you have assets, these will be sold as soon as possible.

Whether the property is sold or not by the official receiver will depend on the equity you have in it (this is also known as beneficial interest). To work this out, take away any money you owe on the property from the value of the property. So, if your mortgage is £100,000 on a property worth £150,000, you will have £50,000 equity. If your home is sold, this equity will go to the official receiver. Even if you’re not on the mortgage, you might be entitled to equity.

There are rules on how quickly your home can be sold, which take into consideration family and the number of people living in the property. If there is more than one person who owns the home, it is only the person that has gone bankrupt whose share of the equity goes to the official receiver. The official receiver has up to 3 years to sell your home, apply for possession of it, or come to an agreement with you about the equity.

If your equity is under £1000, or you are in negative equity, your case will be reviewed after 2 years and 3 months. After this period, depending on whether your situation has changed, you may be able to keep your home. If your equity is over £1000 but is still low, a third party may be able to buy the equity.

There are ways to work with the insolvency service to buy back the equity in your home – this is called a Property Conveyance Scheme, and you will need advice from a solicitor for this. You will still need to keep up your monthly mortgage payments where applicable.

If you rent your property, there may be a clause in your contract that you can be evicted if you go bankrupt, and if you have arrears your landlord may decide to take you to court. Check your tenancy agreement and consider the implications before filing for bankruptcy.

You will either be required to return the item to the hire purchase company, or the official receiver may sell the item.

Any surplus income above £20 per month is likely to be paid into your bankruptcy. Most bankruptcy orders will end after one year. You may be asked to sign a legally binding ‘income payments agreement’ where you will be required to pay monthly instalments from your income for 3 years.

If you do not make a voluntary agreement, then the official receiver can ask the court to make an ‘income payments order’. This will run for three years from the date of the order. You can ask the court to look at this order again if your circumstances change.

This may be issued if the official receiver feels that you have displayed unfit conduct during your bankruptcy period – this can include things such as taking out credit you know you cannot repay, gambling, or running a business under a different name from the one in which you were made bankrupt. A Bankruptcy Restrictions Order can place you on the Individual Insolvency Register for between 2 to 15 years, and the official receiver may also take criminal proceedings against you.

Sequestration is a debt solution available to Scottish residents only.

As a form of personal bankruptcy, sequestration is a big step to take but can often be the most sensible resolution if the debt is insurmountable.

For many, sequestration is seen as the final option as any sizable assets you have will be used to part-pay creditors and take care of any fees in relation to the case.
For more information on Sequestration you can contact Citizens Advice Scotland, Money Advice Scotland or if you would like to speak to one of our chosen partners, simply fill in the contact form and a trained licensed debt adviser will contact you to advise on your options.

National Debt Advice uses trained advisors to give you advice on Bankruptcy and recommend the most appropriate action for your needs – whether that is Bankruptcy or another solution. For more free advice on Bankruptcy or any other debt related issues, please take a few seconds to fill out the simple enquiry form on this page.