In the United Kingdom, there are three different laws for bankruptcy. One bankruptcy system is for Northern Ireland, another is for Scotland, and the last is for England and Wales. Bankruptcy in Scotland is referred to as Sequestration, and the organization that is responsible for overseeing the process is called the Accountant in Bankruptcy. Bankruptcy in England and Wales only applies to individuals, and not other legal entities or companies. An individual can successfully become bankrupt only by court order following the presentation of a bankruptcy petition. You may present your own presentation but only in the case that you are insolvent or in other words unable to pay off your debts. Creditors, or a creditor, are also able to petition for a bankruptcy order to be applied to an individual debtor.
So how do you know if you are eligible to file for bankruptcy? Simple, you can apply to the court to go bankrupt if:
• You are unable to pay your debts
• The creditors that you owe money apply to make you bankrupt (this is only applicable if you owe the creditor £750 or more
Bankruptcy usually only lasts a year, and your debt can be paid off with non-essential assets, such as property and possessions, and excess income. When the bankruptcy period comes to an end, most of the time the debts are cancelled or ‘discharged’. However, filing for bankruptcy is not free, and there are a number of forms you have to complete. The forms you have to complete can be acquired free of charge. There is the Petition form which is your request to the court for you to be made bankrupt. The petition form also includes your reasons for the requests. Then there is the Statement of Affairs form which asks you to list all of your assets (assets that could be used to pay off your debt).
The Statement of Affairs form also requires you to list the names and addresses of your creditors and the amount of money you owe to each one. Upon the completion of the form, you will be asked to make a sworn statement as to its accuracy and completeness before a solicitor of office of the court. So, it is of upmost importance that you fully disclose your assets and debts. A deposit of £525 goes towards the cost of administering your bankruptcy, which is paid to the Department of Enterprise, Trade, and Investment. The payment can be paid in postal orders, cash, or cheque from a building society, solicitor, or bank. Personal cheques are not accepted and will need to be made payable to the Official Receiver. The court fee is £115 and is to also be paid in cash, cheque, or postal order, but made payable to the Supreme Court Fees Account. In certain situations the court may waive this fee, such as if you are on income support. If you are uncertain whether or not you qualify for a reduction in the fee or waive, the court staff will be able to advise you.
If you do not want to file for bankruptcy, there are alternatives that are available to you. This way, you can keep your assets and valuable possessions. You are not required to become bankrupt just because you are in debt. In a lot of cases, creditors will accept an informal agreement to make a repayment timetable. Individual voluntary arrangements (IVAs) can be sought out through insolvency practitioners who can help you to negotiate repayment terms. Administration orders made by the Enforcement of Judgments Office (EJO) orders you to make payments to one entity, which is then distributed throughout your creditors. Debt relief orders can also be an option if you owe more than £15,000 but you are unable to pay.
Debt Relief Order is an insolvency process for people who have no assets, a low income, cannot pay their debts, and have no access to other debt relief solutions to improve the situation. If you have assets and there is a possibility of your situation improving, then a DRO may not be an applicable solution. To apply for a DRO, the conditions you must meet are:
• Owe less than £15,000
• Value of car is no more than £1,000, other assets do not exceed £300
• Unable to pay your debts
• After tax, your excess income is not more than £50 a month
• You are living in England Or Wales, or have been living or doing business in England or Wales within the last 3 years
• You must not have been subject to a DRO within the past 6 years
• You cannot be involved in another insolvency procedure when you apply
Prices of fees can vary according to which jurisdiction you reside in. If you think you may need to file for bankruptcy, and then make sure you lie under the requirements. Alternatives are available, and are a good option if you would rather not lose your assets.
Angie Picardo is a staff writer for NerdWallet. Her mission is to help consumers stay financially savvy and save money with NerdWallet’s best credit cards for bad credit