Bankruptcy
If you have debt problems, you might think that becoming bankrupt would help. It's important to understand what bankruptcy is and what alternatives are available. As bankruptcy isn't permanent, it might clear your debts and allow you to start again.
What bankruptcy is
Bankruptcy is a legal status that usually lasts for a year and can be a way to clear debts you can't pay.
When you're bankrupt, your non-essential assets (property and what you own) and excess income are used to pay off your creditors (people you owe money to). At the end of the bankruptcy, most debts are cancelled.
How you become bankrupt
The High Court can declare you bankrupt by making a 'bankruptcy order' after it's been presented with a 'bankruptcy petition'. A petition may be presented by:
- one or more creditors
- the debtor
- the supervisor of, or a person bound by, an individual voluntary agreement
Filing your own bankruptcy petition
If you decide bankruptcy is suitable, you need to fill in two forms. You can get these from the Bankruptcy and Chancery Division of the High Court in Belfast or from the Insolvency Service.
Debtor’s bankruptcy petition
You need to fill in this form to ask the court to make you bankrupt and includes the reasons for asking.
Statement of affairs
This form asks you to list all your assets (anything that belongs to you that might 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 filled in this form, you must make a sworn statement as to its accuracy and completeness before an officer of the court or a solicitor. It is important you declare honestly all your assets and debts.
Fees
There are three fees you must pay when you take your petition and statement of affairs to the court:
- a deposit of £525.00 to administer your bankruptcy, you can pay this online, in cash, by postal order or cheque from a bank, building society or solicitor to the Official Receiver
- a court fee of £151.00, you can pay this in cash, by cheque or postal order to the Northern Ireland Courts and Tribunals Service, sometimes the court might not charge this fee or might charge less
- a fee due to a solicitor before whom you swear the contents of your statement of affairs, this service costs around £7.00
You should take these forms with the receipt of your deposit paid to the Insolvency Service, to the High Court.
A creditor making you bankrupt
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. There might be different petitioning creditors on the same petition for different debts you owe.
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.
Alternatives to bankruptcy
Bankruptcy is serious. You'll need to give up things you own of value and the interest in your home. But you don't need to become bankrupt because you're in debt.
You can try to make arrangements with your creditors instead - including:
- informal agreements - you write to your creditors to agree a repayment timetable
- individual voluntary arrangements (IVAs) - an insolvency practitioner helps you negotiate repayment terms
- administration orders - the Enforcement of Judgments Office (EJO) orders you to make payments, which the EJO then distributes to your creditors
- debt relief orders if you cannot pay and don't owe more than £20,000
A Debt Relief Order is a formal insolvency process for 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 a suitable solution.
Where a bankruptcy order is made
Bankruptcy petitions can only be presented in the High Court in Belfast.
Who deals with your bankruptcy
An Official Receiver is appointed to protect your assets. They act as trustee of your bankruptcy affairs if you have no assets.
If you have assets, an Insolvency Practitioner will be appointed to act as trustee and sell your assets to pay your creditors. To read more, go to:
Once a bankruptcy order has been made against you, your creditors cannot pursue you for payment. The trustee is responsible for payments.
How bankruptcy affects you
Assets
Once you're bankrupt, the Official Receiver, or appointed trustee, can sell your assets to pay your creditors. Certain goods aren't treated as assets for example:
- equipment you need for your work, such as tools or vehicles
- household items needed by you and your family, such as clothing, bedding and furniture
If you own your home, you might 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 helpful if there is little or no equity.
Earnings
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 might 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.
Ongoing commitments
You'll still have to meet ongoing commitments such as rent or new debts after you become bankrupt.
Other applications
The Official Receiver or a trustee in bankruptcy can make other applications to the Court following a Bankruptcy Order. They include:
- public examinations
- applications to suspend automatic discharge
- applications for permission to act as a director
- private examinations
Your obligations when you're bankrupt
You must:
- give the Official Receiver details of your finances, assets and creditors
- look after your assets and hand them over to the Official Receiver with the relevant paperwork, such as bank statements and insurance policies
- tell your trustee (either the Official Receiver or insolvency practitioner) about any new assets or income during your bankruptcy
- stop using credit cards and bank or building society accounts
- not get credit over £500 without telling the creditor that you're bankrupt
- not make payments direct to your creditors (there are exceptions to this, such as mortgage arrears and unpaid child maintenance)
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 get 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, bankruptcy advertisements in newspapers 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.
How long bankruptcy lasts for
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. In some cases and if you've behaved irresponsibly (for example, by not co-operating), bankruptcy can last for more than one year.
Where to get help and advice
If you're thinking about declaring yourself bankrupt or you're being threatened with bankruptcy, it's important to get independent advice.
You can get free advice from: