The truth about bankruptcy
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Are you worried that you won’t be able to afford the fees to go bankrupt? Our guide will tell you what you need to do.
If you’ve found yourself unable to manage your debts to the point where you think that you won’t be able to pay back everything you owe in a reasonable amount of time, bankruptcy may be a possible solution. Whilst going bankrupt does have an impact on your life, in the right circumstances, it can be the best way of dealing with unmanageable debts. It’s not, however, a free solution, and not everyone can afford to go down this route without help.
It’s really important that you end up on the right solution for you, so in this blog we’re going to look at how much bankruptcy costs and how you should approach the issue if you can’t afford the fees. The costs we’re going to talk about next apply to England, Wales and Northern Ireland, but you’ll find it’s different if you want to go bankrupt in Scotland. In Scotland, bankruptcy is known as Sequestration, while the lower cost option is MAP. The fees and the way that they’re taken with the Scottish options are different. If this applies to you, just go straight to our section on sequestration and MAP fees at the end of the blog.
How much does it cost to go bankrupt?
In case you’re not already aware, the cost of going bankrupt is £705. This is split into two payments, one of £180 for the court fees and a deposit of £525.
If you receive certain means-tested benefits, like Job Seekers Allowance or the Employment and Support Allowance, or you’re on a low income, you may not have to pay the £180 court fee. On this page on the Government’s website you can download the form to apply for this fee to be waived. However, the £525 always has to be paid and can prove difficult to find in some cases.
If you go bankrupt, your income and expenditure is carefully assessed by the Official Receiver (the OR is the court official that oversees the bankruptcy). If, and only if, you can afford it, you’d pay a certain amount into the bankruptcy every month, after your essential bills have been accounted for. If your income is made up only from state benefits then you wouldn’t have to pay anything into the bankruptcy.
How should I approach the problem if I can’t afford the bankruptcy fees?
If you think that you won’t be able to afford the initial bankruptcy fee, it’s really important that you don’t end up starting another debt solution just for this reason alone. If you’ve spoken to an expert, like one of our debt advisors, and they have recommended bankruptcy as the best course of action for you then this will be for good reason. It could have potentially long-term, unnecessary negative effects for you if you were to start a debt solution that wasn’t right, simply to avoid the bankruptcy fee.
It may be possible for a debt charity to cover the bankruptcy fee for you. Turn2us is a charity that helps people in financially difficult situations find the benefits and grants suitable for their needs, so this is a good place to start. There are also a few utility companies that run trust funds that can sometimes cover this fee, including British Gas and EDF Energy, so make sure that you check with your supplier whether they run a scheme like this.
The job you do, or used to do, can sometimes entitle you to help from certain charities as well. For example, current members of the armed forces or veterans might be eligible for help from SSAFA, check if you are here, and for the civil service, The Charity for Civil Servants is the place to go.
Are there any alternatives to bankruptcy that cost less?
If you’ve looked at the cost of going bankrupt and think that you will struggle to find the money, you might be wondering whether another debt solution would be better. In England, Wales and Northern Ireland, Debt Relief Orders (DROs) are an alternative route into insolvency that are designed for people who have a low amount of disposable income. DROs are treated as an alternative to bankruptcy – so if you did qualify for a DRO then you should not go bankrupt.
Whether or not you qualify for one has more to do with how much money you have spare every month, rather than how much money you earn. You can’t have more than £50 in disposable income in order to get a DRO and you also can’t owe more than £20,000 in unsecured debts. You couldn’t have more than £1,000 in assets or own a car that’s worth more than £1,000 either.
DROs work by suspending your payments towards your unsecured debts altogether for a year. After that time, if your circumstances still have not improved, your debts would be written off. The cost of applying is £90 – so this route offers a significantly cheaper way to deal with your debts. Whilst you are allowed to apply for bankruptcy yourself, you’re not allowed to apply for a DRO unless it’s through an approved intermediary, such as ourselves.
The cost of sequestration and MAP
If your debts are unmanageable and you live in Scotland then Sequestration and MAP are two of the options that could help you. Just like bankruptcy, there are fees associated with these solutions. Sequestration is simply the Scottish version of bankruptcy but instead of £705, it costs £200 for the application. While it is significantly cheaper, unlike the £180 court fee for bankruptcy, there are no exemptions to this fee if you’re on benefits or on a low income.
When it comes to sequestration your income will be assessed and you may be required to make payments towards your debts for up to four years. If you can make payments towards your debts, the Trustee, who oversees your sequestration, will take their fees out of this amount. So you don’t pay the Trustee an extra amount, it all comes out of your monthly contribution.
MAP is a debt solution available to people in Scotland and is in some ways is similar to a DRO and offers a lower cost way into insolvency. It stands for Minimal Assets Process and the cost of applying is £90 – again, just like the fee for sequestration there is no way to waive this fee, it must be paid. MAP, as the name suggests, is designed for people who have assets of low value – you can’t have more than £2,000 in total with no single asset worth over £1,000. You also can’t have debts amounting to less than £1,500, or more than £17,000. To qualify for MAP you would either have to have been on benefits for the last six months or have no disposable income left over every month to put towards you debts.
When it comes to your car you’re allowed to own one worth over £3,000, but only if you can show it is for essential purposes and you’re not allowed to own a house or property at all.
If you think that you need to go down either the sequestration or MAP route out of debt, but you can’t afford the fee, the advice remains the same: speak to a debt advisor who will be able to chat through your options – and whether there are other debt solutions that may be more suitable for your personal circumstances.
Make sure you get the advice and support you need – our advisors are ready and willing to help, just use the options on the left. Once you speak to an expert they’ll tell you which solution is best for you based on your circumstances and where you live. If bankruptcy is your best option, they can advise you on how to go about raising the money for the fees.
by Christine WalshBack to blog home