Avoid having to complete your forms twice

It is very much in your interests to take the time to ensure that your bankruptcy petition and statement of affairs are thoroughly completed prior to your hearing.

The court clerk will ensure that you have answered every question on the forms, but they will not check the content of your answers. If the statement of affairs does not contain sufficient information the official receiver may require you to complete another full statement of affairs.

Establishing the owner of a car

Before the official receiver can take any action regarding a vehicle he or she must be certain that it is actually the property of the bankrupt. The registration document of the vehicle only confirms who is the registered keeper, it does not prove ownership.

If the ownership is unclear the official receiver will ask the bankrupt and any third parties involved to produce further evidence of ownership e.g. a purchase invoice, a copy of the loan agreement, or a bank statement showing transfer of funds etc.

Where the vehicle proves to be the property of a third party the official receiver cannot take action to realise it on behalf of the creditors. This applies in cases where the bankrupt is shown as the registered keeper of the vehicle but it was actually purchased by a parent or spouse.

The ups and downs of the road to freedom

There are several key moments that stand out during the bankruptcy experience. Realising that you have to go bankrupt is the first big one. For me the next one was informing my family and friends. Next up was informing my employer and handing in my resignation (which was an inevitable consequence as I was working for a bank).

The next major task was completing the bankruptcy forms. I seem to remember it taking a long time, mainly because I had decided to cover everything I could think of. Then there was the waiting for the hearing - two weeks in my case due to the local court being so busy.

The hearing itself is another key moment, but I have to say I look back on this one fondly. Walking into court with a huge amount of debt, and walking out again free of the burden. However, the next part was the mountain peak for me - the official receiver interview. I didn't look forward to it, I certainly didn't enjoy it, but once it was over I knew it was going to be downhill all the way.

Next was the trustee interview - a walk in the park after experiencing the official receiver interview. For me there was then a period of unemployment. Probably extended too long due to my decision to be upfront about my bankruptcy. That choice certainly backfired, I eventually gained employment from the first company I did not divulge my bankrupt status to.

The final memory is obtaining early discharge - truly free from debt and fully back in control of my life once again. The whole experience complete in under 12 months. One year where I was relieved that time flew by.

Should I be completely honest?

Simple answer... YES. Bankruptcy provides the ideal opportunity to get everything out in the open once and for all. Try not to be afraid of admitting any mistakes. It's much better deal with any issues now than sweep them under the carpet and leave them ticking away like a time-bomb ready to explode at some future date.

Provide whatever information you are asked for. Even if you are scared of the repercussions and feel you may have made an error of judgement, it really is best to bring it all to a head. The official receiver and trustee who deal with your case are very good at uncovering the truth, so by hiding something you will probably be only delaying the inevitable anyway.

Be up front, co-operate fully, and you could well find yourself discharged early. Be evasive and obstructive and you may well find the term and restrictions of your bankruptcy extended. Go on - make it easy on yourself, and relax in the knowledge you can enjoy your fresh start without any lingering worries.

Will I go to prison for fraud?

In the second it dawns on you that you can't avoid bankruptcy it's easy to feel hugely overwhelmed. The fear of the great unknown is enough to send shivers down your spine. I remember the feeling vividly. A barrage of questions filled my head, most of which I had absolutely no answers to.

One big fear was the possibility of losing my freedom. At times I hadn't given a 100% accurate picture of my finances to my creditors. Had I committed fraud? Would I go to prison? When you are ignorant of the facts as I was you literally believe any number of horrible experiences maybe awaiting you.

The fact is that bankruptcy is not a criminal offence. If you are found to have been in some way to blame you may have the restrictions of your bankruptcy extended for anything up to 15 years, but prison isn't on the agenda. Although there is a form of criminal bankruptcy such cases are very rarely seen.

So relax - your liberty is extremely unlikely to be at risk. In fact you are probably more likely to gain your freedom.

Behaviour leading to a bankruptcy restrictions order

The official receiver looks closely at all of your conduct both before and after the bankruptcy order. He or she will report to the court any actions that could be considered dishonest or blameworthy in relation to your affairs. The following types of behaviour could lead to the imposition of a bankruptcy restrictions order:

• Incurring debt you knew you had no reasonable chance of repaying
• Giving away or selling assets at less than their value
• Deliberately paying off some creditors in preference to others
• Gambling or making rash speculations, or being unreasonably extravagant
• Failing to keep or produce records that would explain a loss of money or property
• Fraud or fraudulent breach of trust
• Causing the increase of debt by neglecting your business affairs
• Failing to supply goods that have been paid for
  
• Carrying on a business when you knew or should have been aware that you could not repay your debts
  

'Reasonable domestic expenses' in an IPA

The official guidance from the insolvency service lists the commitments considered to be 'reasonable domestic expenses' when calculating your surplus income for the purposes of an income payments agreement.

Your mortgage or rent payment, food, heating and lighting, and clothing are all included within your normal monthly expenses. In addition the following commitments can also be treated as part of your domestic needs:

• TV and video hire, TV licence
• Home insurance
• Car insurance and car tax (where car has been exempted by trustee)
  
• Car breakdown cover
• Membership of a professional body needed for your employment
• Prescriptions / dental treatment / opticians
• Child maintenance or Child Support Agency payments
• Mobile phone (at a reasonable monthly cost)
  
• Dry cleaning

The list is not exhaustive, other expenses can be considered.

Mortgage payments made after the bankruptcy order

Where a bankrupt continues to occupy a property which forms part of the bankruptcy estate, on the condition that mortgage payments are maintained, he or she will not personally accrue any interest in the property. Neither will any such interest accrue after discharge.

Any capital element of the mortgage repayments will simply increase the amount available to the bankrupt's creditors as and when the property is sold.

Credit reference agencies

The three main consumer credit reference agencies are Experian, Equifax and Call Credit. They hold information on most adults in the UK including previous credit history, which is known as your credit report or credit reference file.

You can obtain a copy of your credit report directly from the credit reference agency for a payment of £2. They have seven days to send your file to you after receiving your application and fee. Their contact details are as follows:

• Experian: 0844 481 8000, www.experian.co.uk

• Equifax: 0870 010 0583, www.equifax.co.uk

• Call Credit: 0870 060 1414, www.callcredit.co.uk
  

Debt Relief Order

A Debt Relief Order (DRO) is a formal insolvency process for individuals who have a relatively low level of debt which they cannot repay, little surplus income and no assets. The procedure is a cheaper non-court based alternative to bankruptcy.

Are You Eligible?

To be able to apply for a DRO you must meet the following requirements:

• you must be unable to pay your debts
• your total debts must not be more than £15,000
• your total gross assets must not be more than £300 (although you can own a car worth up to the value of £1,000)
• your surplus income must not be more than £50 per month
• you must be living in England or Wales, or at any time in the past three years been resident or carried on business in England or Wales
• you must not have previously been subject to a DRO within the last three years
• you must not already be involved in any other type of insolvency procedure e.g. a bankruptcy or individual voluntary arrangement
  

Avoiding bankruptcy

If you are considering bankruptcy it is imperative that you weigh up all of your options, the consequences can be very serious. You do not have to become bankrupt just because you are in debt. If you are in financial difficulty it may be better for you and your creditors to use one of the alternatives, the main ones being:

• Administration Order
• Informal Arrangement (e.g. Debt Management Plan)
• Individual Voluntary Arrangement (IVA)
• Debt Relief Order

You should discuss you circumstances in detail with an appropriate professional adviser before deciding which option is the right solution for you.

Filing bankruptcy

To file for bankruptcy you will need to complete two forms - the petition and statement of affairs - which can be obtained from your local county court. You can also download the forms, or complete them online, using the Insolvency Service website at www.insolvency.gov.uk.

Once complete it is normal practice to present you petition at the county court closest to where you have lived or traded within the last six months. If you live in London your petition must be presented to the High Court. Should you live in one county but trade in another the bankruptcy will be dealt with in the county where you trade.

Bankruptcy law

If you are facing bankruptcy in the United Kingdom the applicable laws differ depending on which country you reside or carry on a business in. The information on this site is relevant to those who live or work in England or Wales. Scotland and Northern Ireland have their own separate and distinct procedures.

If you are unsure whether you qualify to file for bankruptcy in England and Wales you should call the Insolvency Service Enquiry Line on 0845 602 9848 to obtain further guidance. For information on sequestration (bankruptcy) in Scotland you should contact the Accountant in Bankruptcy (AiB) on 0845 762 6171 (www.aib.gov.uk). The Insolvency Service of Northern Ireland can be contacted on 02890 251441.

What is personal bankuptcy?

Personal bankruptcy is a way of dealing with debts that you cannot afford to pay. The proceedings free you from overwhelming debt so you can make a fresh start, and ensure that your assets are shared out fairly amongst your creditors. You will be subject to certain restrictions whilst bankrupt e.g. being unable to obtain credit of £500 or more without disclosing your bankruptcy.

You can file for bankruptcy by presenting a petition at your local county court. If the judge agrees that bankruptcy is the right option an official receiver will be appointed to take responsibility for your assets and the administration of your estate.

Fear of the official receiver interview

I wasn't looking forward to my own interview with the official receiver by any stretch of the imagination. I was aware he would be assessing whether I had behaved recklessly and contributed to my bankruptcy, and from my own perspective I did feel I was partly to blame.

Throughout the previous twelve desperate months of trying to keep my head above water I had utilised every bit of existing credit I had to meet my commitments. I had been wary of giving any indication of my predicament to my creditors for fear that they would refuse to allow me the breathing space I needed to get on top of the situation.

Did my lack of openness mean I had acted recklessly? I was only going to find out after the official receiver had completed his investigations...

Discharged early without knowing it

It is very much in your interests to keep both the official receiver and trustee updated with your contact address details, as you will be sent notification if discharged early.

Prior to the anniversary of my own bankruptcy order I called the official receiver's office to confirm that I would be discharged automatically. To my surprise I was advised that I had already been discharged by the court six weeks earlier - notification had been sent, but it had gone to my previous address. I had been discharged from bankruptcy for several weeks without being aware.

The official receiver's duty to investigate

From the making of a bankruptcy order the official receiver has a duty to investigate the conduct and financial affairs of the bankrupt for the period leading up to the bankruptcy, in order to establish the cause of it. This can involve inquiries into the bankrupt's affairs over several years, but will mainly focus on the period immediately before and after the bankrupt became insolvent.

The official receiver has wide ranging powers to assist in undertaking the investigation, including the power to examine people in court. However, he or she will initially rely on voluntary co-operation and goodwill, only looking to use the option of public or private examination where it is deemed necessary.

Some bankruptcy cases do not require an official receiver interview

Bankruptcy debtor petition cases are categorised according to the complexity of the case and the amount of further information that needs to be obtained after the official receiver has received and reviewed the statement of affairs.

In some cases, where the reason for the insolvency has been fully explained in the statement of affairs, it may be that there is no further essential information to be gathered e.g. in respect of any asset or any income payment agreement matters. Therefore the official receiver can carry out his duties without the need to interview the bankrupt.

Will you be questioned in open court?

A public examination involves you being questioned on oath in open court about your bankruptcy, and can be held at any time before discharge. This can occur for two main reasons:

• to enforce you to attend on, or co-operate with the official receiver, or
  

• to aid the official receiver's enquiries e.g. in relation to the discover of assets.

A public examination will usually only take place where absolutely necessary. At least three attempts must have already been made to advise the bankrupt of the need to attend for interview. If two appointments have been missed, with no explanation or contact, the official receiver can consider a public examination.

In such cases the official receiver may also ask the court to suspend your automatic discharge.

Protecting your car

It is for the bankrupt to satisfy the official receiver that the motor vehicle is exempt property and therefore not included in the bankruptcy estate.

To do this he must show that the vehicle is necessary to meet the basic domestic needs of he and his family, or is necessary for his use personally in his employment, business or vocation.

If the claim for exemption regards domestic needs the official receiver must be satisfied that the vehicle is necessary to the extent that no practical alternative exists i.e. it meets a genuine need and is not merely a matter of convenience.

For further details see Chapter 25: Keeping Your Motor Vehicle
'How to Survive Personal Bankruptcy in England and Wales'

The bankrupt's right to claim an item as exempt

A bankrupt has the right to claim that a particular item is necessary for her family's basic domestic needs or to carry out her work.

It is for the bankrupt to satisfy the official receiver that the item she is claiming is necessary and therefore should be treated as exempt. Where the official receiver has reasonable grounds to believe that the property in question is not exempt he is entitled to treat the property as part of the estate and deal with it accordingly.

Household items such as televisions, dvd players, stereo and computer equipment are not exempt assets as they are not considered necessary to satisfy basic domestic needs. However, it is rare for such items to be claimed and sold by the official receiver as they generally have little second hand value.

Possessions you can keep in bankruptcy

Certain possessions are classed as exempt and do not form part of a bankrupt's estate. Such property is therefore not automatically available to the trustee to realise on behalf of the creditors.

Under section 283(2) of the Insolvency Act 1986 exempt property consists of clothing, bedding, furniture household equipment and provisions necessary for satisfying the basic domestic needs of the bankrupt and his family.

Also exempted are tools, books, vehicles and other items of equipment necessary to the bankrupt for use personally by him in his employment, business or vocation.

The costs of your bankruptcy petition

If you are presenting your own bankruptcy petition at court you will have to pay the following fees:

£150 court fee - in certain circumstances the payment can be reduced or waived altogether e.g. if you are currently claiming Income Support.

£360 deposit towards the costs of administering your bankruptcy - this is payable in full in all cases.

£12 fee to swear affidavit in High Court - if you are presenting your petition in the county court there is no fee for this.

The fees are payable by cash or postal orders, or by bank, building society or solicitor cheque. Personal cheques are not accepted.

Helping the official receiver to help you

Building a degree of rapport with your official receiver will greatly assist in making your interview as painless as possible. This begins at the first point of contact with the official receiver's office, which could occur immediately after your bankruptcy order is granted.

The more helpful and co-operative your are the smoother and speedier your bankruptcy will conclude. You will more than likely find your official receiver helpful and understanding. Try to relax and remember that the interview will likely be far less comfortable than you may have feared.

Employment changes whilst undischarged

Whilst bankrupt you have a duty to tell your trustee about any increases in income you obtain. You must also inform your trustee of any property which becomes yours during the bankruptcy e.g. redundancy payments.

If you gain employment whilst undischarged the trustee will want to assess the possibility of an income payments agreement. This can only be put in place before you are discharged and can run for a period of three years.

It is important that you continue to co-operate fully by providing details of any changes to your trustee as and when they occur.

Much more than just a guide to bankruptcy

How to Survive Personal Bankruptcy in England and Wales '....describes the complete bankruptcy process from beginning to end, as well as detailing the alternatives to bankruptcy and looking at the independent agencies available to help and advise on the most appropriate solution for you.

In addition, there are sections on how bankruptcy can impact your debts, assets, employment and income. As financial hardship has a significant impact on both the individual and their family, I have included a guide to maintaining a positive outlook, which I hope will provide personal support and encouragement if you require it.

Within just twelve months of the date of your bankruptcy order you should find yourself discharged and quite probably debt-free. Therefore, as well as steps for repairing your credit, I have included advice on budgeting and lifestyle changes which you may find useful in helping you get the most out of your new start.'

Excerpted from Introduction

What is a bankruptcy restrictions order?

The official receiver has a duty to make enquiries into your bankruptcy and investigate the cause. Should the enquiries indicate that you have been dishonest either before or during the bankruptcy, or that you are otherwise to blame for it, your official receiver can apply to the court for a bankruptcy restrictions order (BRO).

The court will consider the official receiver's report and any other evidence before deciding. If it agrees it can make an order for between two and fifteen years, during which you will continue to be subject to the restrictions of bankruptcy.

Alternatively you may agree to a bankruptcy restrictions undertaking (BRU) which has the same effect as an order but avoids the need for court proceedings.