When Should I Declare Bankruptcy in the UK?

Mar 31, 2011
Asa Ghaffar

Can I Declare Bankruptcy? - Image by bankrpy76

Need to decide if you should go bankrupt? The cost of declaring bankruptcy in the UK isn't nearly as important as an understanding its implications.

If you have serious debt problems, you're likely to be considering your options. After all, the matter will be publicised in the local paper and will show on your credit report for the next 6 years. You'll also need to pay a £175 court fee and £450 in administrative charges. Data published by the Insolvency Service has revealed that 59,194 went bankrupt in 2010. This is down 20.7% on 2009. The demand for alternatives to bankruptcy, such as the Individual Voluntary Arrangement, have risen sharply.

When Should I Declare Bankruptcy?

The bankruptcy laws were amended by the Enterprise Act 2002, so the majority of people will be discharged after just 12 months. During this period you'll be expected to hand over any surplus income to a trustee. When going bankrupt on benefits, it's unlikely that you'll be expected to make a contribution.

The Official Receiver can now hold you legally accountable for between 2 and 15 years if you've been involved in any rash or speculative activity, such as gambling and investing. This is known as a Bankruptcy Restriction Order (BRO).

Bankruptcy and Employment in the UK

Most jobs aren't affected, but it's important to know whether personal bankruptcy will cost you your job. You won't be able to continue your employment as a lawyer, accountant, company director, police officer or insolvency practitioner. Banking, insurance and other cash-handling positions are also likely to be forfeited.

Can I Declare Bankruptcy and Keep My House?

The Official Receiver will seek to realise funds through the sale of your family home. Any equity will be distributed to creditors on a pro rata basis. Home equity is defined as the difference between the property value and the loans secured against it.

When the property is in joint names, the other party on the mortgage deed may be able to buy out your share. If there's negative equity – following an independent valuation – the Official Receiver will sell on your beneficial interest for £1. You'll also pay £211 for a licensed conveyancer.

If a friend or family member isn't able to buy-out your beneficial interest, you may be given time to sell your home on the open market. If you live with your wife, husband or children, the sale can be delayed for up to a year. If not applicable, your home will be sold at auction for fair market value.

What are the Alternatives to Bankruptcy?

If you're likely to be subject to a BRO, you should consider your options. There are two main bankruptcy alternatives, the debt management plan and Individual Voluntary Arrangement (IVA). Both debt-free solutions involve making a monthly payment to an intermediary.

An IVA is a legally binding agreement to make 60 monthly payments to an Insolvency Practitioner. At the end of the term, any remaining debt will be written off. A debt management plan is a voluntary agreement that's designed to improve affordability, but it doesn't clear debt quickly.