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Tackling your debts

How does Bankruptcy work in the UK?

Posted 04 November 2016 by Christine Walsh

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This is how bankruptcy works in the UK.

Bankruptcy is one way to deal with your unsecured debts if you can no longer afford your repayments. It’s available throughout the UK, and in today’s blog we’re going to explore how it works. 

 

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How does bankruptcy help with debts?

Bankruptcy can help with your debts by lowering your monthly payments to an amount that you can afford, or by suspending them altogether. Whether you have to pay something towards your debts while you’re bankrupt just depends on whether your Trustee says you can afford to. Your Trustee is the person who manages your bankruptcy while it’s ongoing, making sure that everything is done as it should be. 

You won’t have to pay anything towards your debts if your income is made up solely of state benefits. If you do have to pay something, this normally lasts for three years, so a couple of years after you’re discharged from bankruptcy. 

This solution lasts for a year, and after that time the rest of your unsecured debts included in your bankruptcy are written off completely. This means that after a year of sticking to the rules of this solution, you will be free from problem debt. Bankruptcy can therefore provide a much needed fresh start for people struggling with their debts. 

How does it work in Scotland?

In Scotland bankruptcy is known as sequestration, and it works in very much the same way that bankruptcy works in the rest of the country. 

The amount of debt that you need to owe before your lenders can try to make you bankrupt is different however. In Scotland this is set at £3,000, rather than £5,000 as it is in England and Wales. 

In Scotland you have to be able to show that you owe more than £1,500 in unsecured debts before you can apply for bankruptcy yourself. It still lasts a year and provides debt write-off, as it does in the rest of the UK. 

Difference in the cost

It costs £680 to go bankrupt in England and Wales, and this is split between the Official Receiver’s fee of £550, and the administration fee of £130. This can be paid in instalments. Just be aware that your application won’t actually be submitted until you’ve paid the whole amount. 

It costs slightly less in Northern Ireland where the fee is £647, and in Scotland the fee is £200. 

How do I apply for bankruptcy?

If you want to make yourself bankrupt, this now has to be done online in England and Wales. This has made the process significantly easier and less daunting, as you no longer have to go to court if you want to become bankrupt. 

If you want to go bankrupt in Scotland you still have to apply through the Accountant in Bankruptcy and there are certain forms you have to fill out if you want to apply for bankruptcy in Northern Ireland. 

When you complete your application you will need to provide information about why you need to become bankrupt and may need to send in some supporting evidence as well. 

If your application is accepted, then your bankruptcy will be overseen by a Trustee. The Trustee is the person who will decide whether you need to contribute to your debts over the year and whether your assets need to be sold and the money paid to your lenders. 

Your assets

You assets will be at risk with bankruptcy. This means that you might have to sell anything of value that you own so that your lenders can get as much money back as possible. This does include your house, unless you have less than £1,000 in equity, or there are specific reasons why you have to live in a certain house or area. 

Are there restrictions to bankruptcy?

There are restrictions in terms of what you’re not allowed to do while you’re bankrupt. These include: 

• being the director of a company,

• borrowing more than £500 without telling the lender that you’re bankrupt,

• working as an insolvency practitioner (a debt expert), or

• doing business with anyone under a different name, without telling them that you’re bankrupt under a different name. 

 

Being in financial hardship is not considered illegal in the UK and you can’t be sent to prison for missing payments on your unsecured debts. However, breaking any of the above restrictions when you are bankrupt is considered a criminal offence. Breaking any of these restrictions normally results in them being extended for 2 to 15 years, known as a Bankruptcy Restrictions Order (BRO). 

There will be an effect on your credit rating

Wherever you are in the country, deciding to go bankrupt will have an effect on your credit history. If a company such as a lender or a service provider checks your credit file, they will be able to see that you’ve been made bankrupt and that you’ve had trouble repaying your debts in the past. This means they may not want to lend to you, approve you for a service or that you have to borrow at a more expensive rate of interest. 

Bankruptcy will stay on your credit file for six years from the date that it starts. If you had a BRO then it would stay there for however long the restriction order is in place for. 

Is bankruptcy right for me? 

Before you apply for bankruptcy make sure you speak to a debt advisor. Bankruptcy will have an effect on your life and it’s really important to make sure that the pros outweigh the cons in your particular case. 

You can contact one of our advisors here at Debt Advisory Centre, by using the options at the bottom of the page and they will be able to tell you which solution is right for you. There are sometimes fees associated with some of the solutions once they’re up and running but the initial advice we give is always free of charge. 

 

by Christine Walsh

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