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Bankruptcy Process

If you want to declare yourself bankrupt you start the process by filing a Bankruptcy Petition. This is called the Debtor's Petition. If you are being forced to go bankrupt by your creditors then they will file the Bankruptcy Petition, which is then called a Creditor's Petition. A Creditor's Petition can be filed only by one of your creditors if you owe them more than £750.

To file a Debtor's Petition, you contact your local court who will give you the details of your nearest county court that deals with bankruptcy hearings. You will have to pay a Court Fee and the Official Receiver's deposit. If your Bankruptcy Order is not made by your local court then the deposit will be refundable, but the Court Issue Fee is not.

It's important to be aware that filing a bankruptcy petition does not prevent your creditors from contacting you or trying to sue you.

Fact finding

Once your petition is filed, an Insolvency Practitioner is appointed as Official Receiver. This is often someone put forward by creditors, especially if the majority of the debts are consumer credit debts such as credit cards and loans.

Just as with an IVA, the Insolvency Practitioner goes through a fact finding and due diligence process with you. This is a rigorous process that requires you to attend meetings with the Insolvency Practitioner and to provide information and evidence about many different things such as who you owe money to, what your assets are, what you earn, what your household spending is and general background information.

The hearing

A date for the Bankruptcy Hearing is set and your creditors are told so they can provide proof of debts and final balances. You and the Official Receiver attend the Bankruptcy Hearing which is presided over by a Magistrate from the county court. Creditors or appointed representatives can also attend if they want to. The Magistrate reviews the information provided by the Official Receiver and makes a judgement on the content of the Bankruptcy Order if one is to be issued. Not all hearings end in a petition being granted and other outcomes can include the following:

• a delay, while seeking further information
• a refusal to grant the petition
• appointment of an Insolvency Practitioner to set up an Individual Voluntary Arrangement instead.

The Bankruptcy Order

Your Bankruptcy Order will usually involve the following:

• a bankruptcy period that is usually 36 months but which can be as little as 12 months in mitigating circumstances
• lump sums realised by the sale of your assets (e.g. your home and car)
• contributions from your income each month.

A Trustee is appointed and is responsible for selling any property that you own and splitting the proceeds from the sale amongst your creditors. After this, any debt that you owed your creditors will be legally struck out and they will be forbidden from trying to collect any more money from you.

While your bankruptcy is in place, certain restrictions apply. For example you won't be able to have any form of credit such as a cheque book. What your lump sum payments are set at depends on what assets you have at the time of the hearing. They are based on what you have left over after essential spending and can be relatively severe (although typically you'll have to pay 50-75% of your surplus income).

Recording the bankruptcy

A bankruptcy notice naming the insolvent person is published in the local newspapers and the bankruptcy is recorded on the Insolvency Register and with the Credit Reference Agencies. If the debtor is a tenant then the landlord is also informed.

The period of bankruptcy

The Official Receiver continues to govern the bankruptcy after the hearing. He will make sure that your assets are liquidated and that your monthly payments are made. These payments tend to be deducted at source, for example your employer will pay money directly to the Official Receiver. The funds accumulated via these payments are distributed amongst the creditors based on how much each of them was owed originally.

Further reading:
Bankruptcy | Bankruptcy process | Bankruptcy Law | Alternatives to Bankruptcy | Effects of Bankruptcy | Bankruptcy vs IVA | Disadvantages of Bankruptcy | Bankruptcy FAQs

Three steps to a better future

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