How does bankruptcy work?
Entering into bankruptcy is a big decision to make. But sometimes, you might not make this decision yourself. That’s because other people can make you bankrupt.
There are three ways you can go bankrupt. They are:
- a creditor applying for your bankruptcy,
- applying for bankruptcy yourself, or
- your IVA Supervisor petitioning for your bankruptcy.
Being made bankrupt by a creditor
If a creditor wants to make you bankrupt, they’ll have to apply for a bankruptcy petition to be served against you. They can’t just do this if you owe them any amount of money – there are three qualifying criteria.
You must owe at least £5,000 for a creditor to make you bankrupt. This is the minimum total debt you need to have, not how much you’ll have to owe to one creditor. However, if you owe £5,000 in total, your creditors would have to join together and apply for your bankruptcy collectively.
You must also live in England or Wales. You must have been living there for at least six months in the last three years. If you live in Scotland or Northern Ireland, different bankruptcy rules apply.
You must also have little or no realistic ability to repay your debts. This just means that if you could repay your debts on a new repayment plan or by the creditor freezing your interest and charges, bankruptcy won’t apply.
Petitioning for your own bankruptcy
As of April 2016, you can now petition for bankruptcy online. Unlike the creditor bankruptcy petition, there’s no minimum debt level. You just need to be unable to repay what you owe, and you’ll need to prove your situation.
To apply for bankruptcy, you’ll need to submit details of your current financial circumstances. This includes your income, expenditure and your debts. You’ll need evidence of these – so make sure you have any wages slips, benefits statements, bills or letters from your creditors.
You’ll then have to pay the bankruptcy costs and fees of £680. If you can’t afford to pay this one go, you can pay it in instalments. Your bankruptcy won’t start until you’ve paid it all though.
After you’ve applied online, an Official Receiver will then review this. This is someone who works for the Insolvency Service and manages the initial stages of bankruptcy. It’s their job to decide if you should be made bankrupt or not.
If the Official Receiver decides to issue you a bankruptcy order, this means your bankruptcy is accepted. The Official Receiver will then review your liabilities and assets, and they’ll also contact your creditors.
Being made bankrupt by an IVA Supervisor
If you are currently in an IVA, your IVA supervisor can petition for your bankruptcy. They can do this if you:
- give false or misleading information when you apply for your IVA, or
- fail to keep to the terms to the arrangement.
This is why it’s really important that you stick to the terms of your IVA.
After your bankruptcy
Within 12 months from the date you started your bankruptcy, you should be discharged. This will only happen if you’ve met all your legal obligations – so if you’ve paid everything in or sold any assets that you need to.
You can, however, be subject to an Income Payment Agreement (IPA) or Income Payments Order (IPO) for up to three years. With an IPA/IPO, you’ll have to make monthly payments towards your debts. You’ll only have to do this if you can afford to, after your essential bills have been paid.Continue to the next section How do I qualify for bankruptcy?