If your debts are overwhelming you and you do not see a way out, then applying for bankruptcy might be a way to restore some control to a situation that may be threatening to spiral out of control. While you can apply to make yourself bankrupt, one of your creditors can also make the same application about you if you owe at least £5,000. Bankruptcy is often the most straightforward solution to a serious debt problem but it may not be the only one. Other options may be more appropriate for your circumstances. In this article, we look at the pros and cons of applying for bankruptcy without a lawyer and what those alternatives might be.
The pros of applying for bankruptcy
- If you successfully apply to be made bankrupt, then you will immediately get a relief from pressure from your creditors. They will no longer be able to pursue you for the money that you owe them
- Once an application has been accepted, then you will be earmarked a certain amount to live on and be allowed to keep certain household goods by the court
- Your creditors will be ordered to stop pursuing other forms of court action against you once a bankruptcy order is in force
- Most, if not all, of the money that you owe your creditors will be written off.
The cons of applying for bankruptcy
- Applying for bankruptcy is not free. You will have to find a £680 fee when you file your application
- If you earn over a certain amount, then the court may order you to continue making some payments to your creditors for three years
- You will almost certainly be unable to get credit while you are bankrupt and your credit rating will remain low for six years after you are discharged from the order
- You may have to sell some of your possessions (your car, for instance) to repay some of your debts before an order is granted
- You may be ordered to sell your home and you will be unable to get a mortgage while the order is in force and longer if your credit rating is still low for six years afterwards
- You might find that your pension pot is used to repay some of your creditors
- Your business might be closed and its assets sold
- You will need to talk to your employer – some employees have specific clauses about bankruptcy in their contracts
- Your bankruptcy order will be published on a national register
How do I apply to made bankrupt?
While you’ll find plenty of firms advertising bankruptcy services online, you can actually go through this process without outside help. You’ll need to apply at www.gov.uk/apply-for-bankruptcy and fill in a form about your debts, your income, your assets and those of your immediate family.
The application process costs £680 but this money is not refunded once the order is in force. While this may seem like a lot of money, if you apply online, you may be able to pay in instalments.
What if I need help with the process?
You can contact your local Citizens Advice Bureau which will be able to help you negotiate and application for a bankruptcy order. Alternatively, you can call the Insolvency Service enquiry line on 0300 678 0015.
What do I need before making an application?
Before you make your bankruptcy order application, you’ll need to ensure that you have enough money for day-to-day expenditure. Once an order is in force, your bank accounts will be frozen and will come under the control of the Official Receiver.
Make sure that you take out enough money to live on for the first few weeks after you submit the application.
What happens next?
After you’ve made the application, an adjudicator has up to 28 days to make a decision. The adjudicator may need more information – in this case he or she will contact you and will then have a further 14 days to make their decision.
When an application is granted, your accounts will be frozen and your assets will come under the control of the Official Receiver. You will have an interview with the receiver to discuss what is expected of you and how your assets are going to be divided up to pay back some or all of your creditors.
If your application is rejected, you can ask the adjudicator to review the decision. If this fails, you have an option to appeal to the court.
What are the alternatives?
Administration orders – these are issued by a county court and allow you to make a single payment to the court every month towards your debts. You have to have at least two debts and their total value to be less than £5,000 to qualify.
Individual voluntary arrangements (IVAs) – An IVA is a legally-enforced agreement between you and your creditors that gives you a set repayment to all of your debts to make each month.
Debt Relief Orders – if you have few asset, are not a homeowner, have little income and your unsecured debts are less than £20,000, you may be able to apply for one of these which will protect you from creditors chasing you directly.
- Focus on your needs not your wants
- How to budget and live within your means
- How to pay off debt even when it seems overwhelming