proceedings have two of the following main objectives:
- To free the debtor from overwhelming debts so they can make a fresh start, subject to some restrictions;.
- To ensure that the debtor’s assets are shared out fairly among creditors.
Bankruptcy is the only solution that the debtor can force their creditors to accept less than is owed to them. Bankruptcy solution has far-reaching implications on the client, it is generally viewed as a solution of last resort.
Some debtors would not be advised to petition for their own bankruptcy due to the negative impact this would have on their employment status:
- Police officers
- Members of the Armed Forces
- Professionals, e.g. solicitors, accountants who would lose their license to practice
- Company directors
- Financial Services – Advisers
This list is not exhaustive and we would always advise a debtor who is considering bankruptcy to check their contract of employment.
- Marital Settlements
- Unpaid Court Fines
- Student Loans
Bankruptcy Costs and Fees in the UK
In England and Wales:
- The application fee is £130 and
- The bankruptcy deposit is £550
In Northern Ireland:
- The court fee is £127,
- The bankruptcy deposit is £525, and
- There is a solicitor’s fee of £7
Once you’ve petitioned for bankruptcy, the official receiver assigned to deal with your bankruptcy will look through your finances and decide if you need to pay anything towards your debts. You may have to pay a monthly contribution towards your debts for up to three years. This is called an “income payment arrangement” or IPA. It’s payable if you have an available income of more than £20 per month after paying your household bills and essential living costs.
The official receiver won’t make you pay anything towards your bankruptcy if you can’t afford to, and they’ll always leave you with enough money to live on each month.
The debtor’s valuable items, such as property, a vehicle, expensive items of jewelry or savings, the official receiver may arrange for them to be sold, and the money generated will be used to pay back some of your debts.
Bankruptcy Costs in Scotland
- Sequestration (Scottish bankruptcy): the Accountant in Bankruptcy fee is £200. There are no exemptions or restrictions to this, so the total fee amount needs to be paid in full
- Minimal Assets Process (MAP) bankruptcy: £90 application fee, again with no exemptions
In Scotland, the Accountant in Bankruptcy may order you to make a payment each month for up to four years after sequestration. This is called a “debtors contribution order” and is based on your ability to pay. You won’t be asked to pay anything after MAP bankruptcy.
For more info on Bankruptcy refer to below link from Step Change:
The Features of Bankruptcy
- Any creditor who is owed more than £5000 can petition for the debtor’s bankruptcy
- The debtor can apply for his/her own bankruptcy
- The supervisor of a failed IVA can petition for the debtor’s bankruptcy
- The debtor may be required to make contributions to his bankruptcy if they have any disposable income
- Bankruptcy could be the best option for debtors who have no assets and a low level of income/income made up solely/mostly of State Benefits
- As of April 2004, most debtors will get an automatic discharge after one year, though, if awarded, income contributions may continue for up to three years
- Bankruptcy is the way a debtor can force his creditors to accept less than is owed to them
- In bankruptcy control of all the debtor’s assets passes to the TIB who may dispose of these for the benefit of his creditors
The Benefits For The Debtor
- The debtor can’t relinquish personal belongings, tools of a trade, a modest motor vehicle, certain pensions or residential tenancy in bankruptcy
- Income contributions have to be awarded if the debtor has any disposable income, but these may be lower than the level that would be required to maintain an IVA and will not continue for more than 3 years
- Debtors, whose income is made up solely/mostly on state benefits are unlikely to have to make income contributions
- Bankruptcy may provide a much speedier resolution of the debtor’s financial problems than other solutions
The Implications For The Debtor
During their bankruptcy the debtor may not:
- Obtain credit of more than £500 without disclosing their bankruptcy
- Carry on new or existing business in a different name from the name in which they were made bankrupt
- Act as the director of a company or take part in its promotion, formation or management without the court’s permission
- Act as an insolvency practitioner or as the receiver or manager of the property of a company on behalf of debenture holders
- Be a Member of Parliament in England or Wales
- Act as a local Councillor
Responsibilities of The Debtor Under Bankruptcy
- The debtor must not make payments directly to his unsecured creditors. If any creditor requests payment from him, he must pass this on to the OR and tell the creditor that he is bankrupt.
- You must make income contributions to the IP, if you have a disposable income and there is an IPO or IPA in place
- The debtor must provide information about his financial affairs to the OR
- You must collect and hand over his assets to the OR with any account books, records, bank statements, insurance policies and other papers relating to his assets and debts
- The debtor must tell the OR about any assets and increases in income he receives during his bankruptcy
- You must stop using his bank and building society accounts, credit cards and similar accounts straight away
- The debtor must not obtain credit of £500 or more from any person without disclosing that he is a bankrupt.