Bankruptcy is one way of dealing with debts you can’t pay.

This is a formal process administered by the court and based on three main principles:

• Your property and assets are shared out fairly among you creditors
• Your financial and business affairs will be dealt with by a specially appointed professional
• You are freed from the majority of debts after 1 year.

There are three main ways in which you could be made bankrupt:

• Your creditor may ask the court to make you bankrupt if your debt is more than £5,000, the process is called a “creditor’s petition”.
• You may ask the Adjudicator for your own bankruptcy if you are unable to pay a debt (there is no minimum prescribed amount), the process is called a “debtor’s petition”.
• The supervisor of an Individual Voluntary Arrangement (IVA) may ask the court to make you bankrupt if the IVA fails.

Bankruptcy process begins from a request (petition) made to the Adjudicator and can be divided into five stages:

1. Before the petition is presented.
2. After the petition has been presented but before the Adjudicator makes the bankruptcy order.
3. After the making of the bankruptcy order but before the appointment of a trustee in bankruptcy.
4. After the appointment of the trustee and before your discharge from bankruptcy.
5. The period after discharge.

From 6 April 2016:

Your bankruptcy petition must be submitted online to the Adjudicator

Before 6 April 2016:

In England and Wales the court that will deal with your bankruptcy is based in the area in which you have carried out a business or lived for the greater part of the last six months. If you have carried out a business in one area and lived in another, the appropriate court is based in the area in which you have carried out a business.

Your bankruptcy petition should be presented to the High Court in London (if your unsecured debts are more than £100,000 and you carry out business or live in the London insolvency district), or to the Central London County Court (if your unsecured debts are less than £100,000 and you carry out business or live in the London insolvency district) or to your local County Court if you live or carry out business in other parts of England and Wales.

Not all County Courts have bankruptcy jurisdiction. You should telephone the court or call in and speak to a bankruptcy clerk to find out whether this particular court can deal with your bankruptcy petition. If this is the appropriate court, you need to book an appointment for the petition to be heard. Contact details of your local court with bankruptcy jurisdiction can be found on the Court and Tribunal Finder.

• From 6 April 2016:

  Your bankruptcy petition must be submitted online to the Adjudicator https://www.gov.uk/apply-for-bankruptcy

  Before 6 April 2016:

  If you wish to make yourself bankrupt you need to complete and take with you to the court an original and two copies of Form 6.27 “Debtor’s bankruptcy petition” and Form 6.28 “Statement of Affairs”. These forms are available at your local County Court and on the Insolvency Service website.

  Form 6.27 “Debtor’s bankruptcy petition”
  Form 6.28 “Statement of Affairs” and Guidance Notes for completion of the Statement of Affairs

  Strangely enough you don’t have to show your ID in the court to ask for your own bankruptcy.

  It is very important that you complete both forms accurately and truthfully, because inaccurate or untruthful answers can have very serious consequences such as additional investigations by the Official Receiver or Trustee, the cancellation of your bankruptcy and in extreme cases criminal investigations.

For people who have creditors based outside the UK it may be useful to know that the Adjudicator may request additional evidence of those people living, working or studying in the UK – the evidence of those peoples’ UK centre of main interests (COMI).

The evidence typically include bank statements, tenancy agreements, letters from landlords, utility bills, tax credits and welfare benefits letters, letters from HMRC and other central and local Government departments, employment contracts, letters from employers, payslips, for self-employed people tax returns and business books and records, GP and dentist registration letters and other evidence. Put it in a few words: the more evidence the better.

The Adjudicator may also want to see the evidence that your creditors are aware of your relocation and your address in the UK. On the one hand, you don’t have to inform your creditors on your intention to go bankrupt. On the other hand it would be an advantage if your creditors received such notices before you present your bankruptcy papers to the court.

Before 6 April 2016:

We are aware of a practice used by district and high court judges in England and Wales where before a bankruptcy order is made, a person who wishes to go bankrupt may be required to file more evidence in order to establish that their centre of main interests (COMI) really is in this country. Also the court may set a different date for the hearing, usually in 1-2 months, and require that notice of the hearing be given to the creditors so that they can make representations.

In our experience many UK judges question people with overseas debts about their financial and family situation, a history of their financial problems, reasons behind the relocation to the UK, professional advice they received, their understanding of the bankruptcy implications and future plans. However, the official English courts line appears to be that people who genuinely relocate to England and Wales are free to access the UK bankruptcy system.

As per Article 3.1 of the EC Insolvency Regulation:

In the case of a self-employed individual, the centre of main interests (COMI) shall be presumed to be that individual’s principal place of business in the absence of proof to the contrary. That presumption shall only apply if the individual’s principal place of business has not been moved to another EU country within the three-month period prior to the request for the opening of insolvency proceedings.

In the case of any other individual, the COMI shall be presumed to be the place of the individual’s habitual residence in the absence of proof to the contrary. This presumption shall only apply if the habitual residence has not been moved to another EU country within the six-month period prior to the request for the opening of insolvency proceedings.

The new, updated text of the EU Insolvency Regulation (2015/848) can be found here

• Detailed information and guidance on the recognition of bankruptcy and other insolvency proceedings throughout EU countries and the effects of such recognition can be found in Chapter 41, Part 4 of the Insolvency Service Technical Manual, here is the link. The new, updated text of the EU Insolvency Regulation (2015/848) can be found here.The general principle of the EC Insolvency Regulation 1346/2000 is that any judgement opening insolvency (bankruptcy) proceedings handed down by a court of an EU country is to be recognised in all the other EU countries from the time that it becomes effective in the country where proceedings are opened.

  The judgment opening insolvency (bankruptcy) proceedings shall, with no further formalities, produce the same effects in any other EU country as under the law of the country of the opening of proceedings. The automatic recognition rule applies even where insolvency (bankruptcy) proceedings cannot be brought against the debtor in other EU countries.

  However, any EU country may refuse to recognise and/or enforce insolvency (bankruptcy) proceedings opened in another EU country where the effects of such recognition or enforcement would be manifestly contrary to that country’s public policy, in particular its fundamental principles or the constitutional rights and liberties of the individual.

If you wish to make yourself bankrupt you will have to pay the following fees:

• The standard individual bankruptcy Adjudicator’s fees in England and Wales is currently £655.00, from which £130.00 for considering your application and £525.00 for managing your bankruptcy.

If you are a couple, you will have to pay full Adjudicator’s fees each. If you have been trading in partnership, then you would need to pay different fees and complete different forms.

Details of our fees for the Bankruptcy Assistance Service can be found here

Before 6 April 2016:

An original and two copies of bankruptcy petition and statement of affairs filed in the court and checked by the bankruptcy clerk. Please remember the bankruptcy clerk is not legally qualified and cannot give you advice on bankruptcy or any other legal advice. However the clerk will ask you weather you have sought professional advice and from whom. Then the clerk checks that your bankruptcy petition documents are fully completed and you have answered all questions in the statement of affairs. The clerk asks you to pay the court fee and deposit. Your file is then put before a judge.

The judge will either hear your petition straight away or will arrange a date and time for the hearing. During the hearing the judge may:

• Make the bankruptcy order
• Stay (delay) the proceedings
• Dismiss the petition
• Instruct an insolvency practitioner to consider if an individual voluntary arrangement (IVA) is possible or refer the case to an approved intermediary to consider a debt relief order (DRO)

The hearing itself is informal – no wigs or gowns, done in private – no members of public are present, it typically lasts 10-15 minutes. The judge needs to make sure you understand all implications of making yourself bankrupt, you have sought professional advice from a reputable and authorised provider, you are unable to pay your debts, the judge has jurisdiction to make the bankruptcy order.

Sometimes, if the judge satisfied with the bankruptcy petition documents the bankruptcy order may be made without you having to see the judge.

You can bring with you to the court a friend or a relative for your moral support. But they are not permitted to talk to the judge on your behalf.

After the bankruptcy order has been made you have complete legal protection from your unsecured creditors’ debt recovery actions. If the debt is secured, typically by a mortgage on a property, then the lender’s rights to repossess the property are not affected by the bankruptcy. If you wish to try to save your home it is important to maintain the mortgage payments.

After the making of the bankruptcy order the official receiver from the UK Government department the Insolvency Service is appointed to administer your bankruptcy and to protect your property and assets for the benefit of the creditors. The official receiver may continue in office as the trustee in bankruptcy or an insolvency practitioner may be appointed by the creditors.

In majority of bankruptcies the official receiver gets the appointment as the trustee in bankruptcy. Once appointed, the bankruptcy estate “vests” in the trustee – ie, ownership passes automatically to the trustee. He or she controls it and can sell it. Bankruptcy estate includes all your assets which may be sold and used to pay your creditors.

The official receiver is a government servant empowered by the Law to manage the bankruptcy estate and to investigate your financial affairs for suspicious actions and transactions.

The official receiver will look very carefully at anything you did with your assets in the years leading up to the bankruptcy (up to 5 years in the past), in particular if you have recently paid off debts to friends or family, or given money or assets away. As a general rule, you should not give away or sell assets for less than they are worth before you go bankrupt. The same rule applies to paying off debts to friends and family instead of shearing the money between your all creditors.

The official receiver must report to the court any matters regarding fraud or other improper activities in connection with your bankruptcy.

The official receiver will assess your income and expenditure and may apply to the court for an income payment order (IPO) claiming during 3 years any income that exceeds the amount you need to cover essential living costs for your family.

The official receiver has one year from the date of the bankruptcy order to carry out their investigations into your affairs and deal with your assets. However, if you own your home the official receiver has three years to deal with it.

The official receiver must report to the court any matters regarding fraud, recklessness or other improper activities in connection with your bankruptcy. For example:

• breaking any of the bankruptcy restrictions;
• deliberately paying off some of your creditors before others within the 2 years before bankruptcy;
• giving away, transferring or selling your assets and belongings for less than their market value within the 5 years before bankruptcy;
• failing to keep books and records which show how you’ve made losses on property or business;
• making excessive pension contributions before your bankruptcy;
• carrying on a business and making loses when you knew you could not pay your debts;
• deliberately taking on more debts that could not be repaid;
• gambling or being unreasonably extravagant in spending your or your creditors money;
• neglecting your business or financial affairs, causing your debts to increase;
• fraud – for example deception or making a false claim to obtain credit;
• not co-operating with the official receiver or trustee in bankruptcy.

These kinds of reckless and improper activities may result in a bankruptcy restriction order (BRO) being issued by the court against you. A BRO will continue bankruptcy restrictions for a period of between 2 and 15 years.

Generally bankruptcy lasts for one year from the date of the bankruptcy order. At the end of this period you are automatically discharged from bankruptcy.

If you don’t cooperate with the official receiver, for example if you refuse to provide information, the court may order the suspension of the one-year period of bankruptcy. It’s called “suspension of automatic discharge” and may be either for a set time or until you have fulfilled a specific condition. Your bankruptcy will only end when the suspension has been lifted by the court.

Discharge is the formal release from the state of bankruptcy. In other words you are freed from bankruptcy restrictions (“discharged”) after a maximum of one year from the date of the bankruptcy order. Most of your outstanding debts will be written off and you can make a fresh start.

Discharge happens automatically – there is no need to return to the court. However, if you wish to get an official confirmation of your discharge you would have to pay a fee of £70 and make an application to the Court or Adjudicator for a certificate of discharge. You can also ask the official receiver for a letter confirming your discharge, which should be provided free of charge.

• Discharge releases you from all debts, except:

  • secured debts. If your property was sold by the secured creditor and it was not enough money from the sale to pay the creditor in full, the remaining balance of the debt (known as “shortfall”) is unsecured and you don’t need to pay it. You will not be liable for the shortfall when the mortgage or secured loan was taken out before the date of the bankruptcy order even if the property was not sold until many years after discharge;
  • welfare benefits and tax credit overpayment incurred through fraud;
  • student loans provided by the Student Loan Company owned by the UK Government. All other educational loans provided by financial companies will be written off after discharge;
  • magistrate court fines and criminal bankruptcy orders;
  • the Social Fund loans;
  • maintenance orders, Child Support Agency and Child Maintenance Service arrears and other family court orders. The court has the power to release you from paying these debts in full or in part;
  • debts from personal injury claims. The court has the power to release you from paying these debts in full or in part;
  • other debts you built up through fraud.

If you are made bankrupt there are some restrictions that apply to you and last until your discharge from bankruptcy. You cannot:

• obtain credit for more than £500 without informing the lender that you are bankrupt;
• operate a business in any name different from that in which you were made bankrupt, without disclosing the name in which you were made bankrupt;
• act as a limited company director and take any part in the promotion, formation or management of a limited company without the permission of the court;
• hold certain public offices (an insolvency practitioner, an intermediary for debt relief orders) or be a trustee of a charity or a pension fund.

Breach of any of these is a criminal offence, but the restrictions usually end when you receive your bankruptcy discharge.

In some cases your employment may be affected in bankruptcy. Professional bodies of lawyers, chartered accountants, financial advisors prohibit their member from practising whilst bankrupt. If you are with the Police or the Armed Forces your career may be affected. You should always check your contract of employment or service before applying for bankruptcy.

A bankruptcy record will usually stay on your credit report with UK credit reference agencies for six years from the date of the bankruptcy order.Even after this time you may be asked if you have ever been bankrupt, for example when applying for a mortgage.

The three main credit reference agencies in the UK are Callcredit, Equifax and Experian. After six years, the credit reference agencies should automatically remove the bankruptcy entry from your file. It’s still better to contact them and check.

You have to declare your assets in the statement of affairs that goes to the court. However, tools of your trade, your personal possessions, household goods unless they are of unusually high value will be safe in your bankruptcy. It’s very rare that the official receiver will visit your house to make a list of things to be sold. Your partner’s things and your children’s toys are not at risk.

If the official receiver does claim an item from you then your partner, a friend or any other third party can buy the item back from the official receiver.

The official receiver will inform your creditors and, in many cases, your landlord about your bankruptcy.

In most cases your employer will not be informed on your bankruptcy by the official receiver.

Details of your bankruptcy order will be kept on the Individual Insolvency Register during the bankruptcy and for three months after the date of your discharge. The Register is maintained by the Insolvency Service and is open to the public.

A notice of your bankruptcy will be published in a trade paper “The London Gazette” and may also be advertised in your local newspaper. You can avoid the advertisement in the local press but not in The London Gazette, you need to discuss it with the official receiver.

• Once a bankruptcy order is made, any bank or building society accounts you have will usually be frozen. However, you should be able to open a new basic account with Barclays Bank or the Post Office (accounts provided by the bank of Ireland).

If your pension scheme is approved by HMRC, your pension pot will be excluded from the assets that may be sold in bankruptcy. If your pension scheme is not approved by HMRC, the Official Receiver can claim the funds in it as a lump sum of property.

The Insolvency Service have produced a useful guidance on pensions in bankruptcy which can be viewed here

A summary of the guidance for bankruptcy orders made after 5 April 2015:

• Official receivers must not include an undrawn pension pot in any calculation for an income payments order (IPO). Only pensions which are in payment at the date of the bankruptcy order may be considered in this calculation.
• If you are over 55 years of age and have access to an undrawn personal pension pot the official receiver will consider whether you could pay your debts at the date of the bankruptcy application. If it appears that you could pay your debts then the Official Receiver will consider an annulment (cancellation) of the bankruptcy order.

If you have a pension pot and are considering bankruptcy you can contact your local Official Receiver’s Office, phone the Insolvency Service’s helpline or obtain legal advice about this.

When a bankruptcy order has been made against you, you must:

• co-operate fully with the official receiver and trustee in bankruptcy;
• provide information about your financial and business affairs, assets and debts to the official receiver;
• hand over your assets to the official receiver together with all your financial books and records, bank statements, insurance and pension policies and other documents as required by the official receiver;
• inform the official receiver of any assets or increase in your income during the bankruptcy;
• stop using your bank/building society account and credit cards;
• not obtain credit over £500 without first informing the provider of that credit that you are bankrupt;
• not operate a business in any name different from that in which you were made bankrupt, without disclosing the name in which you were made bankrupt;
• not act as a limited company director or take any part in the promotion, formation or management of a limited company without the permission of the court;
• not hold certain public offices or be a trustee of a charity or a pension fund;
• not make payments to creditors included in your bankruptcy.

If you wish to save your home you must continue to make payments for mortgage or secured loan. You should also continue to pay criminal fines, student loans, child maintenance, The Social Fund loans and debts related to personal injury claims against you.

If you are made bankrupt, you have a car and the car is essential for your work or family-related needs and it’s not expensive, you may be able to keep the car. A good example is when you need a car to get to and from work and there is no public transport or you have to travel for your job. The other examples may be if a car is essential because of health problems, school trips, caring responsibilities. You will have to explain to the official receiver why having a car is the cheapest or only alternative you have.

As a general rule, if you can properly explain why you need a car, you will be allowed to keep it if its value under £1,000. In some cases the official receiver may let you keep a more expensive car – for example if the car has been modified to take into account your or your family disability needs. Otherwise it will probably be sold and you will be given about £1,000 to get another car.

If you use a car that belongs to someone else – your partner, relative or friend for instance, this car will be safe in your bankruptcy irrespective of its market value. You may need to produce evidence of who bought the car.

If you are made bankrupt, the official receiver must assess your income and expenses to check if you can afford to make payments into the bankruptcy.If you have “surplus income” – spare money you have after paying your family living expenses, you will be asked to make payments to the official receiver for a specific period of time, but no longer than three years. This process is called an income payment agreement (IPA).

An IPA is a formal binding agreement between you and the official receiver which is entered on a voluntary basis – without the court’s approval. The agreement can be changed if your circumstances change – the payments can go up or down. But if you refuse to sign the IPA, and the official receiver believes that you can make a contribution, an application will be made to the court for an income payment order (IPO).

An IPO is a court order, and if you don’t keep up with the ordered payments, the official receiver may come back to the court for an order suspending your discharge from bankruptcy, or an order requiring your employer to make deductions from your wages.

The amount you need to pay into the IPA/IPO will be calculated after your family “reasonable” domestic needs are taken into account. What are reasonable domestic needs for your family will depend on your particular situation, but “reasonable” does not mean basic.

The official receiver will not usually ask you for any payments if your only source of income is state benefits.

You own your home:
If you own your home, your beneficial interest in the property (your share in the proceeds of sale of the property) will automatically be transferred to the trustee in bankruptcy or to the official receiver, who must deal with it within three years from the date of the bankruptcy order.

The official receiver may sell your home even if your family live there, but the sale will not usually take place in the first twelve months of the bankruptcy. The court may permit the sale of your residential property if the value of your interest is more than £1,000 and there are no exceptional circumstances, such as medical or mental conditions of people living there.

If you are the sole owner of the property, the beneficial interest is the whole value of the property minus any outstanding amount of mortgage and secured loans. If you own the property together with other people, the beneficial interest is usually equally shared between all joint owners.

You don’t have to lose your home. Your partner or friend may be able to buy your beneficial interest from the trustee. Many trustees will happily discuss this option as it will save them the time and money.

You rent your home:
If you rent your home, you should be able to continue living there after the date of the bankruptcy order as long as you comply with the tenancy agreement. Generally, the official receiver has no interest in rented residential properties but may inform your landlord about the bankruptcy. Also, some tenancy agreements have clauses requiring you to leave the property if you make yourself bankrupt. If you have rent arrears, this debt is included in your bankruptcy, but the landlord may continue with court proceedings for possession of the property.