What happens when you become bankrupt?
Bankruptcy is a type of court order that you can seek when you are in debt and feel you have no further alternatives to resolve your financial worries. Occasionally bankruptcy orders might be sought by your creditors to resolve ongoing financial problems, when you owe more than £750.
Bankruptcy is considered a good option when the pressure of debt is weighing heavy and you feel there is no other way out. A bankruptcy order takes the pressure off you because you no longer have to deal with your creditors.
Once the bankruptcy order is complete, you will no longer owe any money. Unlike in the past, there is much less stigma associated with bankruptcy, and it is increasingly becoming a realistic option for those who feel debt is on top of them.
How do I declare myself bankrupt?
A bankruptcy order will cost you a minimum of £700, and this could rise depending on whether you use a solicitor to help you with your application. Generally you will need to make a bankruptcy application at your local court.
The court will ask for a fee of £525, which is non-returnable. You may also be asked to pay an additional £175 depending upon your circumstances.
You will then need to complete a bankruptcy petition form 6.27 and a statement of affairs for 6.28. These forms are used to state your case for bankruptcy, and require you to declare all debts you owe, including any that you are contesting. You will also need to list all your assets.
The final step is to swear an affidavit in court that you have told the truth, before the court decides if a bankruptcy order is appropriate in your circumstances. If the order is made, your accounts will instantly be frozen, and any funds become the property of the Official Receiver.
What happens when I become bankrupt?
Bankruptcy orders usually last for one year, but it is possible for some of the limitations of bankruptcy to be extended for up to 15 years if it is felt appropriate.
The Official Receiver will normally interview you to understand if there are any assets or possessions, which could be sold to realise additional funds for your creditors. The cost of the bankruptcy is paid first from the proceeds of any assets sold, and debts are settled next.
You are not able to apply for credit above £500 whilst you are subject to a bankruptcy order without declaring your bankruptcy status to the creditor. If you own a business it is likely that the Official Receiver will close the business down, dismiss any employees and sell any assets owned by the business. If you own your own home, it is likely your home might need to be sold.
During you time under a bankruptcy order you are also not allowed to act as a company director, nor can you be involved in the management of a company.
Can I transfer assets to a spouse or friend?
It is a common misconception that assets can be transferred to a spouse or family member in order to avoid them being sold by the Official Receiver and used to pay debt.
The law states that any disposal of assets that is not a sale for proper value within five years of a bankruptcy order can be reversed by a court once a bankruptcy order is made. This would then allow the Official Receiver to lay claim to those transferred assets and to dispose of them in the normal way.
More information on the advantages and disadvantages of going bankrupt can be found here.