If you have debt problems, you may be thinking about the possibility of bankruptcy. It’s important to understand what bankruptcy is and what alternatives exist. Bankruptcy isn’t permanent so you may choose it as a way of clearing your debts and making a fresh start.
Bankruptcy is a legal status that usually lasts for a year and can be a way of clearing debts you can’t pay.
When you’re bankrupt, your non-essential assets (property and possessions) and excess income are used to pay off your creditors (those you owe money to). At the end of the bankruptcy period, most debts are ‘discharged’ (cancelled).
The High Court can declare you bankrupt by issuing a ‘bankruptcy order’ after it’s been presented with a ‘bankruptcy petition’. A petition may be presented by:
If you decide bankruptcy is your best option, you need to complete the following two forms. Both forms are also available from the Bankruptcy and Chancery Division of the High Court in Belfast or from the Insolvency Service.
This form is your request to the Court for you to be made bankrupt and includes the reasons for your request.
This form asks you to list all your assets (anything that belongs to you that may be used to pay your debts) and all your debts, including the names and addresses of the creditors and the amount you owe each one.
When you have completed this form you will be asked to make a sworn statement as to its accuracy and completeness before an officer of the court or a solicitor – it is vital you make a full disclosure of your assets and debts.
There are three fees you have to pay when you take your petition and statement of affairs to the Court:
You should then take the completed forms, along with the receipt of your deposit paid to the Insolvency Service, to the High Court.
Your creditors can present a creditor’s petition if you owe them an unsecured debt of over £5,000. This may be the sum of two or more debts which total over £5,000 and there may be different petitioning creditors on the same petition in respect of different debts.
Once bankruptcy proceedings have started, you must co-operate fully even if it’s a creditor’s petition and you dispute their claim. If possible you should try to reach a settlement before the petition’s due to be heard – doing it later can be difficult and expensive.
Bankruptcy is a serious matter – you’ll have to give up possessions of value and the interest in your home. However, you don’t have to become bankrupt just because you’re in debt.
You can try to make arrangements with your creditors instead – including:
A Debt Relief Order is a formal insolvency process that is aimed at people who cannot pay their debts and who have no assets, a low income, no other access to debt relief and no prospect of the situation improving.
If people do have assets, or there is a possibility of an improvement in financial circumstances, a DRO is not an appropriate solution.
Bankruptcy petitions can only be presented in the High Court in Belfast.
An Official Receiver is appointed to protect your assets. They act as trustee of your bankruptcy affairs if you have no assets.
If you do have assets, an Insolvency Practitioner will be appointed to act as trustee and sell your assets to pay your creditors. To find out more information visit:
Once a bankruptcy order has been made against you, your creditors can no longer pursue you for payment. Payment becomes the responsibility of the trustee.
Once you’re bankrupt, the Official Receiver, or appointed trustee, can sell your assets to pay your creditors. However, certain goods aren’t treated as assets for this purpose, for example:
If you own your home, you may have to sell the property. This will depend on who owns the property, the value of the home, and whether the property is worth more than your mortgage. This is called ‘equity’.
It may be possible for the joint owner or family and friends to make an offer to the official receiver to buy out your share of the equity. This is particularly helpful if there is little or no equity.
The Official Receiver can look at your income (taking into account expenses such as your mortgage, rent and household bills) and decide if payments should be made to your creditors.
You may be asked to sign an ‘income payments agreement’ to pay fixed monthly instalments from your income for three years.
If you don’t pay (or if you don’t sign the agreement voluntarily), the Official Receiver can apply for an income payments order from the court to order you to pay. This will run for at least three years from the date of the order.
If your circumstances change, you’ll need to tell the Official Receiver, so they can review these arrangements.
You’ll still have to meet ongoing commitments such as rent or debts incurred after you become bankrupt.
The Official Receiver or a trustee in bankruptcy can make other applications to the Court following a Bankruptcy Order. They include:
You may be able to open a basic bank account once you are bankrupt.
Even after the bankruptcy period, you may find it difficult to obtain credit. The Official Receiver does not send any form of notice to credit reference agencies.
The agencies pick up information from other sources such as the Insolvency Register, advertisements of bankruptcies in newspapers The Belfast Gazette and the Belfast Telegraph, and the Enforcement of Judgements Office.
Details of your bankruptcy are also kept on the Insolvency Register which is maintained by the Bankruptcy and Chancery Office at the High Court and contains records of all insolvencies in Northern Ireland for the last ten years.
Bankruptcy normally lasts for one year. After this time, you’ll be ‘discharged’ from your bankruptcy regardless of how much you still owe.
Your discharge could happen earlier if you co-operate fully with the Official Receiver. However, in a small number of cases and if you’ve behaved irresponsibly (for example, by not cooperating), bankruptcy can last for much more than one year.
If you’re thinking about declaring yourself bankrupt or you’re being threatened with bankruptcy, it’s important to seek independent advice.
Several agencies offer free help including: