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How to go bankrupt

Bankruptcy lawyers and trustees

Bankruptcy is a way to deal with debts you can’t afford to pay. The bankruptcy process is set down in law, which means it’s legally binding for you and your creditors.

The main law covering bankruptcy in England and Wales is the Insolvency Act 1986.

The Insolvency (Northern Ireland) Order 1989 brought the law in Northern Ireland into line with England and Wales, so bankruptcy in all three countries works in the same way.

If you live in Scotland, bankruptcy is also known as sequestration and works differently.

Bankruptcy is a form of insolvency and is normally only suitable if you can’t pay back your debts in a reasonable time. Assets you own, such as your house or car, will usually be sold to pay off your debts.

This means if your assets are worth more than your debts, or if all of your regular payments are up to date and you can afford to keep paying them, bankruptcy is unlikely to be the best option for you.

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What is UK bankruptcy law?

Under UK bankruptcy law, creditors write off your unsecured debts, allowing you to make a fresh start. But during the 12 month term of the bankruptcy you will be subject to certain restrictions.

If your bankruptcy is approved your bankruptcy creditors are legally bound to stop charging interest, and in most cases they’ll be prohibited from contacting you or taking legal action to recover the debt.

An official receiver will investigate your financial situation and payments towards your debts over the past few years. In Scotland, this is done by the Accountant in Bankruptcy.

What is a bankruptcy offence?

If you go bankrupt, the law sets out some things you can and can’t do. You must give the official receiver details of all your debts, assets and income. It’s a criminal offence to hide any assets or deliberately give an official receiver or the Accountant in Bankruptcy false information.

Other offences in bankruptcy include:

  • Changing the name of your business to try and hide your bankruptcy
  • Borrowing more than £500 from a creditor without telling them you’re bankrupt
  • Refusing to hand over documents the official receiver asks for

It’s very important to be open and honest with the official receiver looking after your bankruptcy.

Use our online Debt Remedy tool, for free, impartial advice on all kinds of debt problems and the best debt solution for you.

What are the bankruptcy terms and restrictions?

Bankruptcy normally lasts 12 months, although it can be longer. Throughout this time certain financial restrictions will apply to you.

For example, if you’re made bankrupt you can’t obtain credit of more than £500 without telling the lender that you’re bankrupt. Also, if you’re self-employed, you cannot trade in a name other than the one in which the bankruptcy order was made, or act as a director of a company.

Keep in mind that bankruptcy is also designed to help the people you owe money to. In some cases, you may have to repay monthly payments to your creditors from any available income you have after you’ve paid your essential household expenditure. This is known as an income payment agreement and could last up to three years.

Your assets could also be sold to pay creditors. However, you’ll be allowed to keep anything deemed essential for day-to-day living.
 

What is a bankruptcy trustee?

A bankruptcy trustee is someone who looks after your bankruptcy.

A bankruptcy trustee takes control of the assets of the bankrupt individual and, where possible, oversees the sale of them to distribute funds to creditors.

The trustee is usually the official receiver or Accountant in Bankruptcy administering your bankruptcy, but they can appoint an insolvency practitioner as trustee instead.

Bankruptcy trustee powers

A bankruptcy trustee has wide-ranging powers to investigate the finances of a bankrupt person, collect payments from them and pay their creditors, and sell their assets.

The trustee can also apply to the court for further powers, such as the redirecting of mail or the summoning of anyone believed to be in possession of the property of the person who’s bankrupt.

Do I need a lawyer to go bankrupt?

If you need bankruptcy advice you might be considering consulting a bankruptcy lawyer. If bankruptcy is the right solution for you, you shouldn't need the help of a bankruptcy lawyer. We can give you the advice you need about bankruptcy, and all our advice is free of charge.

If you’re considering bankruptcy, it’s essential that you get professional advice to make sure that this is the most appropriate solution for you. Bankruptcy has many serious implications for your life. You could lose your property, your credit rating will be affected and there could be consequences for your work or business.

For a free, impartial assessment of your situation and free advice on whether bankruptcy is appropriate for you, call our helpline.

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