What Happens in Bankruptcy?

Unfortunately I have personal experience of bankruptcy, so you’re hearing it from the “horses mouth”. Sometimes bankruptcy is the best option and it certainly was for me. Unemployed, no money and nothing anyone could take off me. Actually I generally wish there was something more I could have done, but the situation was what it was. I was bankrupt.

What I didn’t want is someone feeling sorry for me, I certainly wasn’t. I needed advice. The honest kind that hurt and was a struggle to listen to without grimacing.

I found this advice in a family member who confirmed what bankruptcy actually was. I didn’t really stop to think about the process for bankruptcy, or what the bankruptcy order could mean for me, my family and my future prospects. It’s why, for anybody thinking of entering a bankruptcy solution they must first read this!

After reading this, get bankruptcy debt help before doing anything else. I recommend a debt charity like Debt Support Trust (0800 085 0226).

Help & Info on Bankruptcy

There are different routes to enter bankruptcy, depending on your debt level, income and location in the UK. Be careful, the wrong route into bankruptcy and you’ll waste a lot of time and money!

The geographic location matters because the bankruptcy is governed by different laws. In each bankruptcy, the process only lasts for 1 year, however repayments can be requested for 3 years. That’s right, if it’s felt you can afford to repay something towards your debt each month then that would last for 3 years.

England, Wales and Northern Ireland

The routes into bankruptcy in England, Wales and Northern Ireland include

Debt Relief Order (DRO): A debt relief order is for somebody who has £15,000 or less of unsecured debt, doesn’t have a mortgaged property and have less than £1,000 in assets. This costs £90 to enter.

Court Petition: If you don’t qualify for a DRO you will have to go to the local court and petition for your bankruptcy. There’s paperwork to complete and you need to pay £700 to enter bankruptcy .If you’re on a low income it could cost £525.

Creditor Petition: Your creditor could take you to court and file for your bankruptcy – that way you don’t have to pay the fees and charges. Most creditors don’t want to pay the fees, but if you don’t ask you don’t know.

Scotland

In Scotland there are 3 routes to bankruptcy; LILA, certificate and creditor.

LILA: People who earn a low income (£237.40 before being taxed) and have low assets (less than £10,000 total or £1,000 per single item) could apply for a LILA. Unlike the DRO, there is no maximum amount of debt limit. The cost to enter a LILA is £200. The application is made directly to the Accountant in Bankruptcy.

Certificate: The certificate of sequestration route to bankruptcy is for people who can’t meet the LILA criteria but want to make themselves bankrupt. The cost of a certificate of sequestration is £200.

Creditor: Your creditors can make you bankrupt too. This is often the best route if you can’t afford the £200. Speak to each creditor and ask them to make you bankrupt.

Bankruptcy Process: What Happens?

When debts become insurmountable and there’s no other way out, bankruptcy can be the best option. The bankruptcy will last for one year and payments could last for 3 years.

If you’re working then generally you can expect to make a payment to your bankruptcy. My friend entered bankruptcy and he had to to pay £200 per month; which was still better than the £700 he originally had. His problem was he could have entered an IVA (Trust Deed for Scottish people) but didn’t know it existed.

In bankruptcy, a person is appointed to release all equity from assets. So, this means if you have a house with equity, you will have to sell it, or at least provide the equity. If the house has no equity then you can keep it. You don’t automatically lose your possessions, instead, it depends on equity and what’s available.

After one year you are discharged. This means you are no longer in bankruptcy. You might still have to make payments for a further 3 years. After the 3 year period you will have no further payments to make.

Your credit file will have a default lasting 6 years. This means getting further credit more expensive or in some cases impossible.

Fees For Bankruptcy

So, you know how to go bankrupt but who’s going to pay for it? You’re application fee isn’t really going to help investigate your income, expenditure, assets and debts. In truth, it’ll merely scratch the surface.

If you have assets or available disposable income then this will be used to pay for the bankruptcy. The remaining amount will then go back to debts.

You won’t be allowed to set your expenditure in bankruptcy. My experience is you offer your thoughts and the Official Receiver (or person managing your bankruptcy) will determine what they’re giving you. I said my food and household costs for myself and my family were £450 per month but this was cut to about £300. The argument is anybody entering bankruptcy should be living on

If you can’t afford anything into the bankruptcy then the Government will have to cover the costs

What’s Allowed in Bankruptcy

When you apply for your bankruptcy you will be allowed a fair expenditure. The luxuries will be non-existent, but you’ll survive.

Rent/ mortgage, food, gas, electricity and council tax are all accepted. You can have a small clothing allowance of about £10 per month and money for medical and dental costs.

You are not allowed money for fun, smoking or gym membership (unless you have a medical condition and you’ll need a doctors line to prove this).

A bankruptcy expenditure is tight, but livable. There will be no luxuries and it’ll feel like being on the breadline, but at least the debts are being resolved. You will be debt free in 1 year in bankruptcy and stop making payments within 3 years.

 

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John The Bankruptcy Guy

As an ex-bankrupt, John has experienced the highs and lows of credit. It's with this knowledge that he writes Debt Advice Resource - to help others avoid, or navigate out of, the pitfalls of debt.

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