Bankruptcy Advice

A Court makes a bankruptcy order only after a bankruptcy petition has been presented. It is usually presented by:

• Yourself (Debtor's Petition); or
• Creditors who are owed at least £750 by you (Creditors' Petition)

A bankruptcy order can still be made even if you refuse to acknowledge or agree to the order. You should therefore try to co-operate fully once the bankruptcy proceedings have begun. If you dispute the creditors' claims you should try and reach a settlement with them before the bankruptcy order is made: trying to do so afterwards is difficult and expensive.

There are three fees you may have to pay:

• The Court fee of £150
• In some circumstances the Court may waive this fee; for example, if you are on Income Support. If you are not sure whether you qualify for a reduction in the fee, or if you are exempt from paying the fee, Court staff will be able to advise you.
• The deposit of £450 towards the costs of administering your bankruptcy
• This deposit is payable in all cases.
• The fee to swear the statement of affairs
• In a County Court, no charge is made to swear the affidavit, which is part of your statement of affairs. But in the High Court or before a solicitor there is a charge.

If you are a married couple and you are both applying for bankruptcy, you will each have to pay separate fees. If you were in business as a partnership, each partner will have to pay separate fees, unless all the parties apply for a joint bankruptcy petition under the Insolvent Partnerships Order 1994 (Form 16).

The above fees should be paid in cash, postal orders, or by a building society, bank or solicitor's cheque. Cheques should be made payable to H M Paymaster General. Personal cheques will not be accepted.

Bankruptcy petitions are usually presented either at the High Court in London or a County Court near to where you live or trade.

A petition can be presented against you even if you are not present in England or Wales at that time, providing you normally live in, or have a recent residential or business connection with, England or Wales.

If you want to make yourself bankrupt you should contact your local Court. They can give you the name, address and telephone number of the nearest County Court that deals with bankruptcy.

The address and telephone number of your local County Court is listed under 'Courts' in the phone book, where you should look for 'Civil Courts - County Courts' and not 'magistrates' Courts'. The Courts Service website at: http://www.courtservice.gov.uk has an index of County Courts that will show you the area where the County Court has jurisdiction.

The Court will either hear your petition straight away or arrange a time for the Court to consider it.

If English is not your first language and you need an interpreter, the Court will not be able to help you find one. You will have to do this yourself and pay interpreter's fees.

At the hearing the Court can do one of three things:

• Stay (delay) the proceedings - often because the Court needs further information before it can decide whether to make a bankruptcy order.
• Dismiss the petition - perhaps because an administration order would be more appropriate.
• Make a bankruptcy order. You will be bankrupt the moment the order is made by the Court.

Following the making of the bankruptcy order your estate will be transferred to the Official Receiver. The Official Receiver should make contact with you within 48 hours of the order being made. They will make initial contact and ask questions about any assets and bank accounts that you may have and also arrange an interview with you.

The main interview that the Official Receiver has with you will be over the telephone. However, in some cases they may require to see you in person. The Official Receiver will give notice of the bankruptcy order to local authorities, utility suppliers, Courts, sheriffs, bailiffs, National Savings and Investments (premium bonds), the Land Registry and any relevant professional bodies.

Enquiries will also be made of banks; building societies; mortgage, pension and insurance companies; solicitors, landlords and any other persons or organisations who may be able to provide details of any assets or liabilities that you have, or have had, an interest in (either on your own or jointly with others). Third parties will also be asked about any other matters relating to your bankruptcy.

In the event that your assets exceed £10,000 in value the Official Receiver may seek the appointment of an Insolvency Practitioner. The Insolvency Practitioner will be appointed as Trustee and will carry out investigations into your affairs and realise your assets for the benefit of your creditors.

A Trustee in bankruptcy will either be:

• the Official Receiver who is administering your bankruptcy
• a licensed insolvency practitioner

Whether or not a licensed insolvency practitioner will be appointed as Trustee in bankruptcy will usually depend on whether there are significant assets to be realised or realisation is likely to be complex

When a bankruptcy order has been made, you must comply with the Official Receiver/Trustee’s request to provide information about your financial affairs. The Official Receiver may request that you attend at his or her office for an interview. Usually before the interview, you will be sent a questionnaire which you should fill in as fully and accurately as possible.

If the Official Receiver does not ask that you attend at the office for an interview, you will be sent a letter which will set out what is required of you. Again it is likely that you will be asked to complete a questionnaire.

• Give the Official Receiver a full list of your assets and details of what you owe and to whom (your creditors)
• Look after and then hand over your assets to the Official Receiver together with all your books, records, bank statements, insurance policies and other papers relating to your property and financial affairs.
• Tell your trustee about assets and increases in income you obtain during your bankruptcy. By law you must inform your trustee of any property which becomes yours during the bankruptcy. Such property includes lump sum cash payments that you may receive, for example redundancy payments, property or money left in a will.
• Stop using your bank, building society, credit card and similar accounts straightaway.
• Not obtain credit of £500 or more from any person without first disclosing the fact that you are bankrupt.
• Not make payments direct to your creditors.

Until recently the name and address of everyone in your area who had been adjudged bankrupt would be published in your local paper. However, following the introduction of the Insolvency Amendment Rules 2009 (effective 6th April 2009) your name will not appear in the local paper apart from exceptional circumstances.

The Official Receiver is only allowed to advertise based on the following rules:

• Where there has not been a full disclosure of relevant financial affairs.
• Where there has been a high level of complaint or public concern in the local community.

This means that unless you have been dishonest in the petition or are a business that has had complaints made against it then your name will not appear in the local paper. This would be the case for most people.

There is absolutely no restriction in law regarding you having a basic bank account through the bankruptcy process. However, this is at the banks discretion.

After you are adjudged bankrupt, the Official Receiver will contact your bank and they may freeze your account for a period of time.

If you need your car for work or to get to and from work and the trade value is less than £2,000 then your vehicle would usually be exempt from the bankruptcy estate. This is also covered in Section 283(2) of the Insolvency Act 1986. Even if the value exceeds £2,000 then an arrangement can be made with the Official Receiver/Trustee for you to keep it providing a third party can pay the difference between £2,000 and the trade value, or the vehicle would be collected and sold and you could be given up to £2,000 to purchase a replacement.

A vehicle on finance is usually exempt as well, providing that the finance company is in agreement and the outstanding balance on the agreement outweighs the vehicles value.

During the period in which you are an un-discharged bankrupt you may be asked to make payments to your creditors by way of an income payments agreement (IPA). This is a flexible agreement in which you pay a percentage of your surplus income back to the Official Receiver/Trustee for the benefit of your creditors.

This is worked out by taking your essential expenditure and also further expenses allowed in bankruptcy from your income. If there is a surplus of more than £100 the Official Receiver/Trustee will take a percentage of this. The percentage they take depends on the size of the surplus, the more surplus you have the more they will take.

If you own a home either solely or jointly your beneficial interest in the property will form part of your bankruptcy estate. Your home may have to be sold to pay off your debt. The Official Receiver/Trustee will look into the value of the property and any loans secured on it in order to work out the value of your interest in the property.

If you have equity in your property then the Official Receiver/Trustee may allow a third party to purchase the beneficial interest, put a charge on the property or will apply for possession and sale.

If the property is a family home then the Court will generally allow the proceedings to be halted in the first year whilst other housing arrangements are sought.

A debt which is secured by a mortgage or a charge on a property is still a provable bankruptcy debt. The mortgage/loan company is "a secured creditor" which means they have rights over an asset, the house , and can require the asset to be sold to pay their debt. These rights are not affected by the bankruptcy.

On the making of a bankruptcy order the mortgage/loan company could make a claim in the proceedings but, unless it wished to give up the security, could only claim for any estimated shortfall.

If you continue to live in the property it is likely that you will continue to make payments to the mortgage/loan company to avoid the property being re-possessed. When the property is eventually sold any shortfall to the mortgage/loan company is still a provable debt in the bankruptcy, even if you have been discharged, as you are released from the debt on discharge.

However, your bankruptcy does not affect the obligations of any joint owner who has not been made bankrupt to repay the mortgage/loan debt or any shortfall, as they are still liable for the whole of the debt.

After the date of the bankruptcy order the mortgage/loan creditor may ask you to sign a "deed of acknowledgment" of the outstanding debt. If you have signed such a deed the mortgage/loan creditor can take action against you to recover any shortfall following the sale of the property.

If you are bankrupt you are still allowed to earn a living, and can do this by being self-employed or by carrying on a business, as long as you do not disobey the law by obtaining credit of £500 or more without disclosing that you are an un-discharged bankrupt, and as long as you do not use another name unless you tell those with whom you trade of the name under which you were adjudged bankrupt.

The Official Receiver/Trustee must be informed of your intentions to continue to trade and may required full control of your trading bank account.

Under new bankruptcy laws introduced on 1st April 2004 the statutory period for a bankruptcy was reduced from 3 years to 12 months. During the 12 months you are subject to the restrictions of the bankruptcy.

Also introduced in 2004 was the chance for early discharge, this is given when there is no investigation needed further into your affairs and where you have co operated fully with the Official Receiver/Trustee.

This is given at his discretion and therefore you could be discharged in 6-12 months.

Your discharge may be suspended if you have failed to carry out your duties under The Insolvency Act.

You should write to the court where you were adjudged bankrupt quoting your most recent case reference.

The court fee for a certificate of discharge is £60

This is not the case. You are made Bankrupt if a court agrees that you are unable to pay your debts. An Official Receiver or appointed Trustee will then review what you own —referred to in bankruptcy as “assets”. A Trustee is usually appointed when you have more than a few assets of value that may be sold to pay your debts. In your bankruptcy questionnaire, you will be asked to detail your assets; including property, land, money, tools and anything of value.

Any asset that is considered “non-essential” or of excess value may then be taken from you and sold, with the proceeds going towards your debts.

The questionnaire that you complete when you are made bankrupt should be as complete as possible. Your Official Receiver or Trustee will advise you what they consider to be surplus to your requirements.

The Insolvency Act states that you are allowed to keep tools, books, vehicles and other items of equipment, necessary for your personal business use. In your home, you are allowed to keep clothing, bedding, furniture, household equipment and provisions to meet your basic domestic needs and those of your family.

Anything else of value that belongs to you at the start of your bankruptcy may be taken from you.

Dress or costume jewellery of little value is unlikely to be taken from you in bankruptcy, but there are of course exceptions as jewellery can be very valuable.

Whilst your Official Receiver or Trustee is attempting to raise as much money as possible for your creditors, they have to consider reasonable costs of sale and if your jewellery is likely to raise much money for creditors.

If you have a regular wedding band, it is very unlikely that you will lose this. An engagement ring is different as it is usually of much higher value. In this case, you may lose this item. However, as with many assets in bankruptcy – if a third party is prepared to offer an equivalent value to your Official Receiver or Trustee, you would be allowed to keep it.

If you have antique jewellery or jewellery of high value, it is likely that this will be taken from you. A description of the piece will be taken and you will be provided with a receipt for each item.

You are allowed to retain assets that meet the basic needs of you and your family, whilst you are bankrupt. Whilst it is unlikely that your Official Receiver or Trustee will have to consider any of your children’s belongings, you are obliged to detail anything of significant value.

For example, you may have antique dolls or playhouses which are actually of some value. If you are unsure, you must discuss any items to the Official Receiver or Trustee.

If your child has a television or games console, these are likely to be considered reasonable. However, very high value televisions and equipment may be considered unreasonable. In this case they may be taken and a less expensive replacement provided at a later date.

We always recommend that you always discuss your finances with your partner or spouse. There is often an emotional benefit to “clearing the air”. Depending on your relationship they may have legal rights in bankruptcy, for example regarding your home.

If you are married and you own your home together, your spouse will be informed that the house forms part of your bankruptcy assets or “estate”. Any action to sell your house will consider the rights of your spouse — and your children — to live there.

If you owe money to your spouse, they have a very low priority in bankruptcy and will usually only receive any payment towards the debt, after all other creditors have been paid in full.

If you are not married, the law does not provide the same protection to your partner. The term “common law” husband or wife does not actually have legal meaning in England and Wales. You may have lived with your partner for many years, but in legal terms they are not connected to you. In bankruptcy, this may mean that you could lose your home quite quickly if you are only living there with your partner.

Regarding your assets that you could lose in bankruptcy, your Official Receiver or Trustee will normally invite your spouse or partner to make an offer to “buy-back” these assets. This could mean that you continue to enjoy your assets, whilst your creditors are fairly compensated.

Remember also, that if you are not discussing your finances with your partner or spouse, you may not know the extent of their finances. They may be able to help you get back on track. On the other hand, they may need help too and it could prevent matters from getting worse.

Bankruptcy is a personal solution to your debts and will only be entered into by you. A joint application for bankruptcy can only be made by business partners.

A court considers an application for your bankruptcy, whether this is made by you or your creditors. They consider whether or not you can pay your debts. No-one else has an input in making you bankrupt. Ultimately, even if a creditor applies or petitions for your bankruptcy, it is still the court that decides to make a bankruptcy order against you.

If you have separated from your partner or spouse, you should consider the impact on them. Do you have any assets together? What about joint debts?

Any joint assets are likely to be dealt with in your bankruptcy – so you should give your former partner or spouse the opportunity to take independent, legal advice.

Likewise if you have joint debts together, bankruptcy will only prevent creditors from pursuing you for them. Because most joint debts are “joint and several”, this means that your creditors can pursue your partner for the outstanding debt in full, if you can no longer make payments to it.

You can only make your former partner aware of the possible impact on their affairs. A court will only permit a legal objection to your bankruptcy order being made in exceptional circumstances. For example, your partner may know of a joint bank account that could clear your debts in full. In normal circumstances, your former partner being pursued for the debt is not sufficient to prevent an order being made.