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For many, bankruptcy might seem like a last resort and not something that you want to come to terms with. However, bankruptcy is quite common for individuals and businesses who have accumulated a lot of debt and it can be a reasonable way to get your life back on track.
For individuals who have mountains of debt across credit cards, personal loans and payday loans, it could be an idea to speak to a professional debt advisor about solutions and possible bankruptcy rather than applying for new loans – which should not be a way to overcome your debt. Our guide explains some of the key points regarding bankruptcy.
What is bankruptcy?
Bankruptcy is a form of insolvency whereby an individual or a business has no money and ends up owing more money than they can afford to repay. It is a ‘status’ that you declare (or have declared for) and is an indication that you cannot make any further payments.
Declaring bankruptcy allows you to make a fresh start when you are struggling financially. You will no longer be required to deal with the people and the organisations you owed money to. But this isn’t a get out free card. Instead, a third party known as the ‘official receiver’ will have to take control of all your assets and property to administer payment through these on your behalf. So, you can expect things like your house or your car to be sold in order to make up these payments.
Being in a state of bankruptcy usually lasts around a year and will be held on your credit file for 12 years. At this point, you will be discharged from bankruptcy and your outstanding debts will simply be written off.
Yes, you can apply for your bankruptcy yourself. If this is not the case, an organisation that you owe money to may have applied on your behalf in order to recover the funds they are owed.
Your application will be looked at by someone who works for the Insolvency Service called an ‘adjudicator’. They will decide if you should become bankrupt or not.
To apply you, you can simply do this online.
If you live in England and Wales, you can declare yourself bankrupt. However, for the residents of Scotland or Northern Ireland you cannot do this for yourself. If you do live in Scotland or Northern Ireland, it is best to speak to a debt adviser.
To apply for bankruptcy, you will be required to pay a court fee of £180 as well as a deposit of £525. The total of this is going to be £750.
If it becomes apparent that you cannot meet the cost of the court fee or you are in receipt of certain benefits, it may be possible that these fees can be reduced. Of course, you will have to provide evidence. However, the deposit cannot be wavered or reduced at all.
If the adjudicator does make you bankrupt as requested, you will receive a copy of the bankruptcy order and you may be interviewed about the situation you are in.
You will also be alerted that your assets can be used to pay off your debts i.e your house and your car. You will need to follow bankruptcy restrictions.
Your name and details will be published in the Individual Insolvency Register. You can actually apply to have your address removed from this register if publishing it will put you at risk of being targeted by debtors. This will not affect your bankruptcy, but you will need to provide a strong case rather than just bringing forward a claim.
As mentioned, you will be released from your state of bankruptcy after a year and all the remaining debts will be written off. However, assets which were obtained during the state of bankruptcy can still be used to pay off debts.
You may be able to cancel your state of bankruptcy yourself before you are discharged. To cancel it, you must fill in a form and wait to be approved. You will be given a date for a court hearing of your application – you must attend this. If the court agrees with your application, they will make an annulment order in order to cancel your bankruptcy.
By having a history of missed payments, this will likely cause your credit rating to fall over time. By officially declaring yourself bankrupt, it will stay on your credit file for 12 years – so any future loan or credit providers will be aware of this when reviewing your application for a financial product.
Typically, lenders will be more cautious to lend to someone who has been recently bankrupt and therefore the individual will likely be restricted from obtaining several financial products.
The individual will need to work hard to improve their credit score in the future, repaying off credit cards and loans for several years to build it up a reputable score.