Welcome to our Complete Guide to Bankruptcy Series. In this series, you can read our guide to everything you need to know about bankruptcy to help you make an informed decision. Join us so you don’t miss any post in this series.
You may have heard that bankruptcy is one way to sort out your finances. There are advantages and disadvantages to bankruptcy and it is not a step that should be taken without considering all your options because it can have serious, long term consequences. You can read the first post in this series what is bankruptcy?
How to Declare Bankruptcy
So you’ve decided to declare bankruptcy. Now what?
If bankruptcy is your best option, the next step is to complete the bankruptcy application form and pay the fee.
You can do this form online here. The current cost of applying for bankruptcy is £680, which is non-refundable unless you can cancel your application before submitting.
However, you can pay this amount by as many instalments as you require, with a minimum online payment of £5. You can also pay the full amount by cash at any branch of the Royal Bank of Scotland.
When you have filled in the form, you’ll be asked to confirm that you’re the person named on the form and the information you’ve provided is accurate.
You’ll also need to consent to a credit check. It is important to note that any false statements or deliberate failure to declare all your property or assets is a criminal offence with stiff penalties, including a possible prison sentence, so take the time to make sure all details are correct.
Make sure you withdraw enough money from your bank account to cover your living expenses for a few weeks (if you have it).
This is because your accounts may be frozen immediately a bankruptcy order is made, but there can be a few days delay before the official receiver takes control of your finances, so you’ll want to make sure that you have enough money to see you through.
Once you’ve submitted your application, the adjudicator has 28 days to decide whether to issue a bankruptcy order or reject your application.
If they need any further information, they’ll contact you, which gives them an extra 14 days to make up their minds.
If your application is rejected, you can request a review of their decision and then appeal to the court if they still reject it.
Can a Creditor Make me Bankrupt?
In certain circumstances, you may not have any choice when it comes to starting bankruptcy proceedings. One or more of your creditors might apply to have you declared bankrupt, even if you don’t want to be.
If this happens, don’t panic. It’s not a foregone conclusion.
However, you’ll have to act fast and follow the correct procedure if you want to have a chance of avoiding bankruptcy.
It is even possible that their attempt to make you bankrupt could be classed as harassment if bankruptcy is inappropriate, so it’s worth your while challenging them.
You Need to Take Action Before It Gets Too Serious
A creditor can apply to make you bankrupt if you owe them at least £5,000 and they follow the correct procedure.
First, they need to prove that they gave you the chance to pay back the loan, usually either through a statutory demand or a court judgement. If you don’t come to an agreement to pay a statutory demand within 21 days (or get it cancelled), the creditors can then request a bankruptcy order.
Likewise, if they’ve attempted to enforce a court judgement with bailiffs or another enforcement process and haven’t had any success, they can progress to the next step.
If you receive a statutory demand, seek legal advice immediately. You may decide that you would like to declare bankruptcy.
In this case, if you ignore the statutory demand and your creditor asks for you to be made bankrupt, they will be liable for the fees involved. However, there is no onus on the creditor to apply for bankruptcy, even if they have the right.
If you want to try and avoid bankruptcy, you need to either respond with 21 days with full payment or an offer to negotiate repayment or apply to have it cancelled within 18 days. Depending on the reason for the cancellation, your creditor may not be able to make you bankrupt.
A creditor’s prime motivation is usually to recover or minimise their loss, so there are a few other options you may want to consider.
You could request that they write off the debt if you absolutely no means of paying what you owe. They may decide that it is cheaper for them to cut their losses than incur further court costs pursuing you for money you do not have.
You could offer a voluntary charge on your home. This means that when your house is sold, your debt will be paid from the profits. Seek specialist advice before agreeing to this.
You could agree an individual voluntary arrangement to pay off your debt. This is a legally binding agreement to pay your creditors over a certain amount of time. This can be expensive to set up, but long term may be preferable to bankruptcy.
If you can pay your creditor enough to reduce your debt to below £5,000, they will no longer be able to apply to make you bankrupt.
How to Avoid Bankruptcy by a Creditor
It is highly recommended you seek legal advice if you want to avoid a creditor making you bankrupt following a statutory demand if you fail to get it cancelled or repaid. You may be eligible for Legal Aid to help you with this.
You will need to apply to the court to oppose the bankruptcy order. You do this by submitting the appropriate forms at least 7 days before the hearing detailing your reasons, e.g. you don’t owe any money, the creditor failed to follow correct procedure or you already made an offer of repayment.
Make sure you send a copy of this notice to your creditor and their legal representative.
Bankruptcy Court Hearing
You will have to attend a court hearing, usually before a district judge. Take with you all your evidence if you are opposing the bankruptcy order and ideally you should be represented by a solicitor.
The judge will either:
- Dismiss the petition if they agree with your reasons to do so
- Suspend the process if they need more evidence or decide to give you time to raise the money to pay your debt
- Issue a bankruptcy order. You will be declared immediately bankrupt and an official receiver will be informed.
So you’ve declared bankruptcy. Now what happens after bankruptcy? Be sure to join us so you do not miss any post in this series.
Over to You
Have you been declared bankrupt? Have you been bankrupt in the past? We’d love to hear your experiences, so leave a comment and tell your story.