In this post, we’ll cover what happens when you declare bankruptcy.
Read the Series
You can read the first two posts in this series below.
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.
So what happens when you declare bankruptcy?
Once a bankruptcy order has been made, you’re officially bankrupt and your bank and/or building society account(s) will be frozen.
Your money and property will fall under the control of the official receiver, who will contact you within 2 weeks of the bankruptcy order being made to arrange an interview, usually over the telephone.
The official receiver will oversee the administration of your bankruptcy.
They will either personally distribute your money and assets between your creditors or oversee the appointed bankruptcy in doing this, as well as other related roles such as advertising your bankruptcy in the London Gazette.
It’s in your best interests to fully co-operate with them – they’re there to help you.
Your interview with them will take anything from 30 minutes to 3 hours depending on how complex your situation is.
The interview will cover the information you have provided about your financial circumstances, checking that it’s accurate and asking for further details if necessary, as well as covering any questions you may have about the process.
If at least half your creditors request it, you may be summoned to a public examination, which involves you declaring an oath about your financial circumstances.
If you don’t attend, you could be arrested, fined and even sent to prison. The official receiver may also choose to arrange a meeting of creditors to discuss the best way forward.
You may need to open a new bank account to receive your earnings or benefits and pay bills. Even if your bank agrees to let you keep your existing account – and they don’t have to – it’s unlikely to happen until after it’s been frozen for a while, so it’s worth looking at your options at this point.
As a bankrupt, not all banks will accept your account application or they may impose limits.
You do not need to tell the official receiver or bankruptcy trustee about any new accounts unless asked, but you do need to tell them about any money that is surplus to what you need for reasonable living expenses. They may then claim some of money for your creditors.
Bank Accounts after Bankruptcy
It may be that you cannot find anyone willing to give you a bank account. If this is the case, you can either:
Apply for a Basic Bank Account
A basic bank account is exactly what it sounds like. You won’t get a cheque book or overdraft facility, but you will be able to get wages, benefits, pensions, etc. paid into it.
You can also withdraw cash from Post Offices and cash machines and set up direct debits and standing orders, as well as pay money in, withdraw money and check your bank balance at the bank counter.
Open a Post Office Card Account
A Post Office account could be a good option if your income is solely derived from benefits, state pensions or tax credits.
You cannot receive any other kind of payment into this account, including housing benefit, and you cannot get an overdraft facility on it.
However, no credit check is required to open one.
Get a Prepaid Debit Card
A prepaid debit card works in a similar way to regular debit and credit cards, so you can use it to pay bills, transfer money or get cash from ATMs.
You can only spend as much as you have on the card, which can be topped up at Post Offices or Paypoint machines.
Be aware that many of these cards charge a fee for various transaction types, so it can be an expensive way of handling your finances.
If your circumstances improve during your bankruptcy, you must inform the official receiver or bankruptcy trustee.
This could include lottery or premium bond winnings, an inheritance or personal injury award. Unfortunately, they may take some of your gains to pay towards your debt.
Bankruptcy & Income Payments Agreements and Orders
One of the purposes of bankruptcy is that your creditors receive at least some of what they’re owed if possible.
Since a bankruptcy order means that most, if not all, of the payments you make to creditors will stop, you may well have more income than you need for your living expenses.
This could result in you asking to make payments towards your debts through an Income Payments Agreement (IPA).
If you refuse, the court may issue an Income Payments Order (IPO).
An IPA usually means you make regular, monthly payments towards your debts, although you may also pay a one-off lump sum. They normally last for three years, some extend beyond the usual length of a bankruptcy, but you don’t have to go to court to agree one.
IPAs usually require you to pay a minimum of £20 per month towards your debts based on your disposable income and can be increased/decreased if your circumstances change.
If your sole income is from benefits, you won’t be asked for an IPA.
If you don’t agree to an IPA, the bankruptcy trustee may decide to apply to the courts for an IPO, forcing you to pay.
If you want to oppose the IPO, you will need to go to a court hearing and provide your reasons for opposing.
If your circumstances change, e.g. your income goes up or down, you lose your job or you receive an inheritance, you need to tell the bankruptcy trustee. The Trustee will decide whether to change the amount you pay or even suspend payments altogether.
If the trustee won’t change the amount and you believe they should, you can request the court to order an amendment.
Creditors: What Happens When You Declare Bankruptcy
This means that they need to cease attempting to get money from you or contacting you about your debt, although they can send letters to inform you of any outstanding balance.
They cannot start any new court action against you either unless they have specific permission from the court.
If your creditors are still contacting you, first make sure that the debt they’re chasing is included in the bankruptcy and that they’re not just sending you statements.
If the debt is included, don’t pay them anything and refer them to the official receiver or bankruptcy trustee. If they persist, you need to inform the official receiver or trustee about this.
If the debt isn’t included in your bankruptcy, you’ll still be responsible for dealing with the creditor.
If you believe that it should have been included but you forgot, contact the official receiver to see if it’s possible to get it added.
Can Creditors Contact Me After Bankruptcy?
Some creditors do have the right to contact you after filing for bankruptcy. Not all debts are covered by bankruptcy. In those instances, the creditors are permitted to chase you for payment. These types of debt include:
- Secured debts, e.g. mortgages
- Debts where a bailiff obtained a walking possession order or controlled goods agreement before your bankruptcy came into effect.
- Magistrates court fines
- Maintenance payments
- Child support
- Social fund loans
- Student loans
- Court ordered payments under a confiscation order
- Debts to HM Revenue and Customs
- Council tax arrears where your local authority took out a council tax liability order before your bankruptcy took effect
- Rent arrears. Although your landlord cannot force you to pay these, you can be evicted if you don’t.
If you are being chased for any of these debts and you’d like to agree a payment arrangement, you’ll have to contact them directly to sort this out.
Problems with Your Bankruptcy Trustee
It may be that your creditors are coming to you because they haven’t heard anything from the official receiver or bankruptcy trustee. Since this is part of their job, if they are failing to act you can make a complaint.
If your trustee is the official receiver, you should use the Insolvency Service’s complaints procedure here. If they are an insolvency practitioner, you’ll need to go through their professional body using the Insolvency Service Complaints Gateway.
Bankruptcy and Payment Protection Insurance (PPI) Claims
Bankruptcy affects PPI claims.
If you believe you were mis-sold PPI, it is highly unlikely you can make a claim or keep any money arising from a claim if you are bankrupt.
This is because such a claim is counted as an asset and thus part of the bankruptcy estate, even if you’ve been discharged. (Unless the official receiver or trustee has agreed to transfer the right back to you.)
If you think you were mis-sold PPI, you need to tell the official receiver or trustee before you put in a claim and if you’ve already started proceedings, you need to tell them.
You’ll also need to tell the company you’re claiming against about your bankruptcy status who will probably pay out a claim directly to the official receiver or trustee. If not, you need to tell them about any payments.
PPI Claims Management Companies
If a PPI claims management company contacts you to make a claim, take care, especially if they tell you that your bankruptcy doesn’t affect a claim.
You must contact your official receiver or trustee before starting the process.
If you’ve already instructed a claims management company, you may find that you have to pay their commission yourself.
This could be because the official receiver or trustee claims the full amount of any pay out for the bankruptcy estate, so there is no money left for fees or it could also be because the company you’re claiming against is also one of your creditors.
If the latter is true, they can offset any compensation against your debt, again, leaving you with no money for fees.
The official receiver will investigate your financial behaviour in the lead up to your bankruptcy application as well as during the period of bankruptcy.
If you commit a bankruptcy offence, you could be fined or even sent to prison, so if you think you may have done something that qualifies as a bankruptcy offence, seek professional advice before applying for bankruptcy.
Bankruptcy offences these include:
- Lying or deliberately omitting relevant information about your finances in your application, bankruptcy interview or any statements about your financial situation
- Hiding details of any assets worth over £500 or any property you own
- Leaving the country with belongings worth £500 or more which you were obliged to give to the official receiver or trustee
- Running a business using a different name to the one you were declared bankrupt under without informing everyone about the name under which you were made bankrupt
- Gaining credit of over £500 without declaring your bankruptcy to the lender
- Breaking any restrictions placed on you during your bankruptcy or through a bankruptcy restrictions order or undertaking
If you think you’ve committed a bankruptcy offence, seek legal advice as soon as possible.
If you can prove that you didn’t intentionally mislead or defraud the official receiver, you may have a reasonable defence, but you’ll need expert legal advice to support you.
You may be entitled to Legal Aid to help with this.
What Happens to Forgotten Assets after Bankruptcy
Sometimes, with the best will in the world, mistakes happen and you genuinely forget to declare a debt or asset.
If this happens, you need to act immediately to avoid penalties. Tell the official receiver or bankruptcy trustee so that they can use it towards discharging your debt.
Don’t think you can hide a forgotten asset by giving it to someone else, either.
Official receivers are very thorough and if they uncover your deception, they’ll seize the asset and you may find yourself behind bars.
What Happens to Forgotten Debts after Bankruptcy
If you forgot about a debt when you applied for bankruptcy, you can add it to your bankruptcy providing it is the kind of debt covered by bankruptcy.
Talk to your official receiver or bankruptcy trustee to get it added.
However, if you’ve subsequently accrued new debts since declaring bankruptcy, this will not be covered.
Remember that you are limited to £500 credit if you’re bankrupt. If you want to apply for more credit, you will need to tell the lender about your status and if you don’t, this is a criminal offence that could lead to fines or jail.
Bankruptcy Restrictions Orders (BRO)
A BRO is a court order that extends some of the restrictions imposed on you during your bankruptcy and can last up to 15 years. This means that you cannot:
- Apply for credit of more than £500 without declaring your BRO
- Act as a company director or be involved in establishing, promoting or running a company without first obtaining permission from the court
- Use a different name for business without declaring the name in which you were made bankrupt
- Act as an insolvency practitioner, local councillor or school governor or hold certain positions in associations, governing bodies or professions
- Exercise any ‘right to buy’
- Become an MP in England or Wales
In addition, your existing creditors will be informed of your BRO and a press notice will be issued, so you may find the details of your BRO published in local newspapers and media.
You will also be listed on the insolvency register, which is accessible by the public, as well as the Insolvency Services Restrictions Outcomes website.
When deciding on whether to issue a BRO, the court will examine your financial behaviour both pre and during your bankruptcy, looking at things such as
- Whether you broke any of the restrictions placed on you during your bankruptcy
- Attempted to circumvent the restrictions of a bankruptcy, e.g. by deliberately paying off some creditors before others or giving away in the 2 years before your bankruptcy or selling your belongings for less than their worth in the 5 years before your bankruptcy, taking on debts you knew you wouldn’t be able to repay, etc.
- The court will also look into whether you’ve previously declared bankruptcy. While none of these alone would guarantee a BRO, they will give the court a good idea of your financial activities and whether a BRO is justified.
Cancelling a Bankruptcy
You can cancel, or annul, a bankruptcy by applying to the court where you were originally made bankrupt.
This legally reinstates your position as if you’d never been bankrupt. You can do this if any of the following applies:
- You’ve fully paid off all bankruptcy debts and expenses or have made arrangements to secure or guarantee them
- You were made bankrupt by a creditor but believe this should not have taken place, e.g. you owed no more than £5,000.
- Your creditors have agreed an individual voluntary arrangement (IVA).
You cannot cancel your bankruptcy just because you’ve had a change of heart, which is why it’s so important to seek legal advice and make sure you’re completely sure before starting the process.
Although you’ll no longer have the legal status of a former bankrupt, there are still some aftereffects you’ll need to take into consideration. These include:
- Needing to pay any debts that haven’t already been dealt with
- Losing any property that was sold by the official receiver or trustee
However, on the plus side:
- You’ll get back any property or belongings that haven’t yet been sold
- Your details will be removed from the Insolvency Register five days after the cancellation
- You can apply to the Land Registry to remove any bankruptcy notices registered against property you own
- You can tell credit reference agencies that your bankruptcy has been cancelled so they can update your credit reference file.
How Can I Apply to Cancel my Bankruptcy?
The process for cancelling varies slightly depending on the reason for annulment.
1. If you’ve paid your debts and expenses in full
Complete application form 7.1a, which you can get from the court or the Insolvency Service here.
Submit the application form to the court, along with a written witness statement including details of debts and proof of repayment. You will need to pay an application fee, but you might be able to get this waived or reduced if you ask the court.
Once you have a date for your hearing, tell the official receiver or bankruptcy at least 28 days in advance and let them have a copy of your application and witness statement.
They will then submit a report confirming your repayments and detailing how you’ve handled your finances during your bankruptcy.
All that’s left to do is for you to attend the hearing.
2. If the bankruptcy order shouldn’t have been made
Complete application form 7.1a and complete a written witness statement detailing the reason(s) why the bankruptcy order shouldn’t have been made.
Submit these to the court, who will set a date for the hearing, and forward copies to your official receiver or bankruptcy trustee.
Go to the hearing. You will have to pay an application fee, but you may be able to get this waived or reduced if you ask.
If you are successful in cancelling your bankruptcy, any BROs will also be cancelled.
However, although your bankruptcy may have been cancelled, you might still be liable for the costs of the original order as well as the annulment hearing.
The court will make a decision on these costs during the hearing.
3. If you agree an Individual Voluntary Arrangement (IVA)
Either you or the supervisor of the IVA will need to apply to the court for a cancellation using the same process as when a bankruptcy order shouldn’t have been paid.
However, you will need to wait for 28 days after the creditors have agreed to your proposal before you can do this.
Discharge from Bankruptcy
If you’ve been fully compliant with the official receiver and trustee, you’ll be discharged from your bankruptcy after 12 months.
Most of your remaining debt will be written off, with the exception of the loans listed earlier.
Your discharge is an automatic process, so if you want proof, you’ll need to apply for it.
You can get a certificate of discharge from the official receiver confirming the date of discharge for free.
Details of your discharge will also be listed on the Insolvency Register for three months, so you can also print this off as proof.
You might want to get certain public records updated as well.
For example, if you want your credit record to reflect your new status, you’ll need to send all the credit reference agencies proof and request they update your file.
However, a bankruptcy will still remain on record for six years.
That should be the end of things and you can start to move on with your life.
However, if you haven’t co-operated with the official receiver or have been financial irresponsible, e.g. taking on further debt knowing that you can’t pay it back, you could be issued with a bankruptcy restrictions order, which can last up to a whopping 15 years.
So be good and follow the official receiver’s instructions – you know it makes sense!
Well done and give yourself a pat on the back for reading this long post.
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.
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