Who can declare bankruptcy?

You can only declare yourself Bankrupt if you are truly insolvent -i.e. if you do not have enough money each month to cover your reasonable living expenses and your debt repayments, and / or the total amount of your assets is less than the total amount of your debt.

In this instance it is important for homeowners to understand that ‘assets’ includes the equity you own in your property. Equity is the term used to describe the difference between the value of the property and the debts owed against that property, and if this equity is greater than your overall debts, then you are not insolvent and should generally avoid Bankruptcy.

Will your job be affected by bankruptcy?

There are various professions which will not allow you to continue to practice while you are a Bankrupt person – typically this will be included as part of the Employment Contract or membership of the profession’s Supervisory Body; Bankruptcy would be a breach of such contract.

These professions include: Lawyers, Chartered Accountants, or many positions within the Financial Services industry. You will also be prevented from being a Member of Parliament, Justice Of The Peace or Local Authority member while you are a Bankrupt person.

If you are a member of the Police Force or Armed Forces, declaring Bankruptcy may have an adverse effect on your career. Before declaring Bankruptcy, you MUST discuss your circumstances with your personnel department or a superior.

As a Bankrupt person, you can not operate as a Director of a Limited Company or be involved in the promotion, formation or management of a Limited Company without permission from the Court. If you are currently in such a position, you must think very carefully before declaring yourself Bankrupt.

Where do you live?

Bankruptcy is only available for people who are resident in England and Wales.

If you live in Scotland or the Channel Islands, then different rules and law apply. You should seek separate advice from the local Citizens Advice Bureau.

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When would you decide to declare bankruptcy?

By and large, most people who declare Bankruptcy have no alternative, and therefore there is not much of a decision to take!

Most people try to address their debt position through a number of other, less severe methods, such as Informal Repayments (either directly with the lenders or through an informal Debt Management Plan) and Debt Consolidation loans, without success for whatever reason. They might also have considered the possibility of formal repayment arrangement such as an Individual Voluntary Arrangement (IVA), only to find that they could not maintain the level of repayments required within this stricter regime. Once all these options are exhausted, the only thing left to do is declare Bankruptcy.

Sometimes people who are eligible for other solutions such as IVAs nevertheless decide to declare Bankruptcy. Pensioners, for example, and those living on State Benefits, will usually be financially better off if they declare Bankruptcy. They will probably be discharged in less than one year, and it is likely that they will not be subject to an Income Payment Order. Therefore for these people, Bankruptcy might be more attractive than an IVA.

Other people who opt for Bankruptcy rather than an IVA usually do so because they have no significant assets to lose. In addition, if their job is not affected by Bankruptcy, they are not worried about having a poor credit rating and are not concerned about having their name in the papers, (i.e. the main disadvantages of going Bankrupt do not apply). Decisions about Bankruptcy can also be influenced by other matters such as attitude to debt – some research can identify differences in attitude according to generation, with ‘older’ generations tending to be less inclined to declare themselves bankrupt than their younger counterparts.

Will my spouse / partner be affected by my bankruptcy?

If your financial affairs are separate, the answer is no. Assets which are truly in your Spouse or Partner’s name cannot be taken into account if you declare Bankruptcy.

If you declare Bankruptcy, a third party who lives at the same address as you may experience problems with their credit file. Whilst changes in the law now require that credit searches can only take account of details of the individual, unfortunately it is common for information to creep from one person’s credit file to another’s, especially if they share the same address. In order to prevent this from happening, the third party must contact one of the credit reference agencies to request them to ‘create a disassociation’. This means that your information will be removed from their file, and their information removed from yours. To do this, you must give Experian or Equifax your full names and dates of birth, as well as details of your relationship and any shared addresses.

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Can I go bankrupt more than once?

Yes. However, if you declare Bankruptcy a second time, the period of your Bankruptcy Order is likely to last more than 12 months and, if you are required to make payments into your Bankruptcy, your Income Payment Order may be extended also.

Advantages and disadvantages of bankruptcy

Bankruptcy: The advantages

If you become Bankrupt, all * of your debts will be taken away from you and you will no longer be responsible for repaying them. However, see Disadvantages below. After twelve months you will be ‘discharged’ from Bankruptcy, and the Bankruptcy restrictions will be lifted. Any money outstanding will be written off, except for Student Loans and non-dischargeable debts. Even though your house and car may be at risk, your reasonable household goods are safe – nobody will be knocking on your door to seize your DVD player, sofa, fridge or washing machine. Should the Court decide that you should make payments into your Bankruptcy from your income, your payment plan to the Court usually will last only for three years – that’s two years less than an IVA.

Bankruptcy: The disadvantages

Bankruptcy is a public affair; your name will be published both in your local newspaper and the London Gazette. You may be required to make a contribution from any monthly disposable income over and above £99 to the Court, usually for 3 years. Your credit rating is significantly damaged; the record of your Bankruptcy will remain on your credit file for six years. Debts to the Student Loans Company cannot be included, and will remain after you have been discharged. Some other debts are not covered by the bankruptcy process – e.g:

• Some tax liabilities
• Fines
• Mortgages and secured debts You may have to give up control of your house and assets but reasonable household items and cars valued to a maximum £2500 should not be affected.

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