Bankruptcy FAQ

Bankruptcy is one concerning aspect of one’s financial condition and though might be a common way of writing-off debts has its own negative implications. The choice of declaring bankruptcy needs to be made after analysing the situation and the various trade-offs. With the need to understand the system better before taking a decision, we have consolidated the top FAQs that frequently top the mind with regards to Bankruptcy.
What is Bankruptcy?
It is the inability of an individual to pay his current debts. Once declared bankrupt, your assets are equally shared among your creditors and the rest of the amount is written-off to enable you to make a fresh start.

How much does it cost to go bankrupt?
An application fee of £600 is required to be paid in the court by anyone who needs to file bankruptcy. This fee is reduced to £450 in case you are in receipt of incapacity benefits or any other related state benefits. Sometimes you might also need to pay particular amount of money as charges towards the service provided by bankruptcy agency or expert.

Where can I declare bankruptcy?
The order is normally made in the local court where you have had been living for the greater part during the last six months.

What are my duties as a bankrupt?
You need to co-operate with the Official receiver assigned to manage your financial affairs. You need to inform your trustee about all financially valued assets during the period of bankruptcy. You should always pass through the receiver for making any payment to your creditors. Also you need to inform the lender that you are bankrupt in cases of obtaining loan greater than £500.

Will my bank account be lost?
The receiver will question you for all accounts and the amount available in them before he releases any assets to you or your creditors. Your bank account might be initially frozen for a few days after which it can function as usual. Some banks might decide to close your account in cases of bankruptcy and in such cases you can always find another bank which is ready to have your account.

Will lose my home and pension on declaring bankruptcy?
Your house property can be sold off to pay your creditors during the period of bankruptcy. In cases of a family home or a joint property where your partner is in a good financial condition, the receiver can halt sale for a year or your partner can ponder possibilities for purchasing the house back respectively. Alternatively your Inland Revenue approved pension will not be included in your bankruptcy estate.

What will happen to my car?
In cases that you require your car for work during your bankruptcy term, your car can be exempt from being sold if its value is lesser than £2000. In cases of value greater than £2000, either a third party can pay the amount excess of £2000 or your car can be sold and you might be replaced with £2000 for purchasing another one.

How long does bankruptcy last?
Bankruptcy lasts for a period of not more than 12 months within which the receiver looks into all your assets and deals all financial affairs with the creditors. In some cases, where there is no required investigation, you could be discharged in anytime between 6-12 months based on the receiver’s discretion and your level of co-operation with him.

Am I liable for any payment during my bankruptcy?
During the term of your bankruptcy, you may be required to pay a portion of your surplus income to the official receiver and who uses it for the interests of your creditors. The amount is decided depending on your income and essential expenditures. The maximum amount that you might be required to pay is 70% of your surplus income.

What about tax benefits in case I work during bankruptcy?
In case you are working during your term of bankruptcy, your tax code will change to NT and you will not be deducted of any tax charges. The tax amount is paid to your official receiver who will allocate the funds based on your creditor’s priority.

Will my credit history become affected after bankruptcy?
Declaring bankruptcy affects your credit score badly, but once you are discharged of it, you can work towards rebuilding it by means of positive and healthy financial activities.

Will my name appear in the local paper?
With the changes to the Insolvency Act in 2009, the receiver need not advertise your bankruptcy in the newspaper unless he feels that you have been dishonest in your business or in your petition.

Will my employer be informed of my bankruptcy?
There is no significant need to inform your employer unless your job contract levies bankruptcy restrictions on your employment.

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