Bankruptcy isn’t as scary as it seems – it’s a straightforward process that allows you to become debt free relatively quickly. If you’re unable to repay your debts, it might be the right solution for you.
There are many types of bankruptcy and these are explained below.
Bankruptcy in Scotland (Sequestration)
How do I apply for bankruptcy?
1. Getting started
You’ll receive a letter from us explaining your insolvency advice along with a copy of the Full client agreement, which you need to sign and return. If your case has just been set up, your Debt Coach may have already discussed this with you.
If you live in England or Wales, you’ll also need to choose three questions and answers for your online bankruptcy security, which we’ll explain in more detail in your letter.
2. Paying for your bankruptcy application
You’ll have to pay a fee to apply for bankruptcy. This is not a fee payable to CAP for our service which is, and will always be, free of charge. How much you’ll pay depends on where in the UK you live.
In England and Wales, it costs £680 per person to apply for a bankruptcy (payable to the Insolvency Service).
In Northern Ireland, the fee is £676 per person (payable to the Courts).
3. Giving your information to CAP
At this stage, CAP may get in touch with you to ask for extra information. This will include certain paperwork depending on your circumstances.
4. Completing your online application
For bankruptcies in England and Wales, we’ll help you complete your application and send this to you to submit online. For bankruptcies in Northern Ireland we’ll send a helpful pack to guide you through what to do, every step of the way. If you need support, you can call us on 01274 761 999 and we’ll walk you through the process.
5. Submitting your online application
Once you’re happy with your application, you’ll need to submit it yourself. You may need to confirm your identity by following the steps to use the Verify government system. If you’ve registered with Verify before, you won’t need to register again. Please let CAP know when you have submitted your form.
6. The Official Receiver
After the bankruptcy has been approved, you may have a phone interview with the Official Receiver. Their role is to work on behalf of the Insolvency Service and the Courts to administer your bankruptcy. They may ask you for more information about the property and debts listed in your application. They will also be able to answer any questions you may have about the bankruptcy.
7. Returning your paperwork
Within 14 days of your bankruptcy, you’re likely to receive some more paperwork from the Official Receiver that you’ll need to sign and return. There is often a short timescale to return these forms, so please call us if you’re not sure how to complete them.
That’s it! The process is complete and you’ve taken another step towards becoming debt free. Remember, bankruptcy doesn’t last forever, it’s usually just a year. It’s not a life sentence, but a way of clearing your debts so that you can get on with your life.
There are just two places where all bankruptcies are listed in England, Wales and Northern Ireland:
1. The Individual Insolvency Register
This is an online register of all active insolvencies. The record will be removed from this register shortly after your twelve-month moratorium (this refers to how long your bankruptcy lasts).
2. The London Gazette (England/Wales) or the Belfast Telegraph (Northern Ireland)
These are online lists of public information that are mainly used by people in the finance industry. This information will be listed here indefinitely.
Both of these listings are not normally looked at by members of the public, so it’s unlikely that anyone will find out about your bankruptcy, unless you choose to tell them yourself.
It’s very rare for your bankruptcy to be listed in any local or national newspaper. Normally the only people who are formally notified about your bankruptcy are the people you owe money to. The Official Receiver does this shortly after your bankruptcy has been approved.
If having your address in the public domain could put either you or a family member at risk, you can apply for a Persons at Risk of Violence Order (PARV) from the court. This order will authorise the Insolvency Service to withhold your address from the public register of bankruptcies. If this is relevant to you, please contact us. We can help prepare the relevant application forms for you.
There is normally no reason for your employer to be told about your bankruptcy if you’re currently working. However, there are some jobs you are not allowed to have during your bankruptcy, including being a solicitor or a director of a limited company. It might affect jobs in banking and financial services too. There are also voluntary jobs you can’t do, like being a trustee of a charity or a school governor. If you’re unsure if your job will be affected, you should speak to your employer.
If you have an increase in your income, this will need to be declared to the Official Receiver. If you’re receiving income from a wage or a private pension, the Official Receiver may ask you to make a monthly payment towards the bankruptcy. This is called an Income Payments Agreement (IPA) and it lasts for three years.
It’s your responsibility to keep the Official Receiver up-to-date with any changes in your circumstances during this twelve-month period. This includes your employment, financial changes and any other personal details.
If you receive an asset of significant value or a lump sum of money (like lottery winnings, inheritance or a tax rebate) during your bankruptcy, you’ll need to declare this to the Official Receiver. It’s likely that they will seek to take this and use it to pay your creditors.
Pensions can be affected by bankruptcy, so it may be worth seeking pensions advice before going bankrupt.
If you want to take out more than £500 of additional credit during your bankruptcy, you must tell that creditor that you are bankrupt.
Bankruptcy can have an effect on your property or possessions. The Official Receiver can take items to value and sell, to cover their administrative costs, and to pay toward your debts.
They won’t take normal household items such as your kitchen appliances, soft furnishings or children’s toys. They may look to sell items that aren’t needed for your job or basic living needs such as antiques, jewellery or leisure equipment.
Whether they will try and sell your vehicle depends on how much it’s worth and how you use it. You can usually keep a vehicle that you need for work, caring for a dependent to meet your basic needs. However, if it is of a high value then they may sell it and give you some of the proceeds to buy a cheaper vehicle.
How the Official Receiver treats items on hire purchase will depend on how much they’re worth and what you use them for.
If you’re a homeowner, your property could be affected by bankruptcy, depending on how much equity is in it:
If there is equity in your property then the Official Receiver may want to release this money by selling your property or putting a charging order on it so that if it’s sold in the future then they would get a share of the proceeds. If there is a joint owner of your property they may also see if that person could ‘buy you out’ by buying your share.
If there is little or no equity in your property when you apply for bankruptcy, then the Official Receiver will wait and see if this changes in the next three years. If equity does become available, they may take action to sell the property at that stage. Throughout this time you would still need to maintain your mortgage and other secured debt payments.
If you didn’t want to stay in your property, you could choose to leave and formally end your mortgage. You would need to speak to your mortgage provider about this. In this case the mortgage and secured debts should be covered by the bankruptcy.
You may find that any bank accounts in your name are ‘frozen’ after your bankruptcy is approved. This can be for up to two weeks, however it is usually only for a few days. This is just temporary and isn’t the same as your account being closed. During this time, you may not be able to take out any cash or make payments on a debit card. Any Direct Debits or standing orders you’ve set up will be delayed until after this period.
Because of this, it’s a good idea to withdraw any cash that you may need during this time, before you submit your bankruptcy application. It may also be sensible to submit your application just after being paid to ensure you have enough money to take some out beforehand.
Your bank may decide to close your account once you’ve been made bankrupt. If this happens, you should be able to find another bank that can provide you with a basic bank account. It may be sensible to wait until after you’ve submitted your bankruptcy to open a replacement bank account, otherwise you’ll have to list this new account on your bankruptcy application.
Some banks only allow bankrupt customers to have a specific kind of account. This may mean your existing bank may make you change the type of account you have. If you want to be certain about what your bank will do, get in touch with them about your options before you submit your application.