bankruptcyinstruction

Your 5-minute guide to bankruptcy

Overwhelmed by debt? Bankruptcy is the means of last resort to rebuilding your financial well-being.

Before you make a decision to file for bankruptcy, consider the following:

Can you accept the immediate consequences of bankruptcy: ruined credit, higher interest rates on new loans and credit cards, higher insurance premiums, difficulty renting a new apartment? Chapter 7 remains on your credit reports for seven to 10 years, Chapter 13 for seven.

Can you avoid bankruptcy by cutting expenses, getting a second job, negotiating with creditors to reduce your interest or payments  or setting up a debt-management plan with an agency affiliated with the National Foundation for Credit Counseling?

Doing nothing about your debt is an option only if you're happy being a pauper. If you have assets, your creditors can sue you and take them. Judgments against you last for 10 years and can be renewed for two additional 10-year periods.
Remember, bankruptcy is not a badge of dishonor. Most people who file got in a hole because of divorce, a job loss or medical bills, not because of flagrant overspending.  Most people who file had no alternative: Fewer than 5% of those who participate in the credit-counseling session that's required before they can file have any resources to pay off their debts.

Bankruptcy may be your best option if it will take more than five years to pay off your unsecured debt, such as credit cards and medical bills.  Bankruptcy will not relieve you of secured debt -- where the creditor holds a lien -- like a mortgage or car loans. It also won't end your obligation for most student loans, child support, alimony or recent taxes.

6 tips for a smoother bankruptcy filing
If you decide that bankruptcy is necessary for your emotional and financial well-being, take these steps:

Hire a reputable attorney. The 2005 bankruptcy law increased the amount and complexity of paperwork, including a "means test," needed to file. Beware of bankruptcy mills that charge high fees for botched service.

Get credit counseling from an approved agency within 180 days of filing.

Gather documents. When you meet with the lawyer, you will need pay stubs, deeds, vehicle titles, tax returns and letters from collection agencies, among other paperwork. Your list of creditors must be complete.

Don't run up your credit cards. Bankruptcy courts consider that fraud, and you'll end up having to pay what you owe on the cards.

Don't deposit your money with the banks that issued your credit cards. Banks typically have the right to seize other funds on deposit if a credit card account becomes delinquent.

Use the American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys as resources.

For most people, there are two types of personal bankruptcy:

Chapter 7 requires the sale of nonexempt assets to reduce unsecured debt. The remainder of your unsecured debt will be excused. What's considered exempt varies from state to state. You are allowed to keep your retirement accounts, and most people retain possession of a car and their home if they keep making payments on them.

If your income exceeds the median for your family size in your state and the means test says it's sufficient to make payments on your debt, you will be directed to file Chapter 13 instead. Under Chapter 13, you keep your property and agree to a three- or five-year repayment plan for some of your debt. If you follow the plan, the remainder of your unsecured debt will be eliminated. Chapter 13 is generally the better option if you've fallen behind on house payments because the plan allows you to catch up.

After you file, an "automatic stay" stops all collection attempts. The stay is temporary for secured debt, so you need to make payments or face repossession or foreclosure. You'll attend a creditors meeting , where a trustee will finalize your case. You'll be required to attend a finance management course.

After you file
Take these steps as soon as possible after you file:

Start to build your credit score by getting a secured credit card or passport loan.  Don't exceed 30% of your available credit each month and pay your balance in full. After a year, apply for a regular credit card.

Order your credit reports from the three credit bureaus. Make sure the reports say your debts have been "discharged in bankruptcy."

Obtain an installment loan as a way of rebuilding credit, but prepare to pay a very high interest rate.

If you have student loans, try to pay more than the minimum required each month.

Don't co-sign for a loan. Ever.

If you intend to keep your car, sign a reaffirmation agreement with your lender.

Manage your finances wisely. Multiple bankruptcies are possible but are disastrous to your credit. You can file under Chapter 7 every eight years and Chapter 13 every two years.

How much will it cost to make myself bankrupt?

There are three fees you may have to pay:
The Court fee of £120
In some circumstances the Court may waive this fee; for example, if you are on Income Support. If you are not sure whether you qualify for a reduction in the fee, or if you are exempt from paying the fee, Court staff will be able to advise you.

The deposit of £250 towards the costs of administering your bankruptcy.
This deposit is payable in all cases.

The fee to swear the statement of affairs.
In a County Court, no charge is made to swear the affidavit, which is part of your statement of affairs. But in the High Court or before a solicitor there is a £7 charge.

If you are a married couple and you are both applying for bankruptcy, you will each have to pay separate fees. If you were in business as a partnership, each partner will have to pay separate fees, unless all the parties apply for a joint bankruptcy petition under the Insolvent Partnerships Order 1994 (Form 16).

The above fees should be paid in cash, postal orders, or by a building society, bank or solicitor's cheque. Cheques should be made payable to H M Paymaster General. Personal cheques will not be accepted.

Where is the bankruptcy order made?

Bankruptcy petitions are usually presented either at the High Court in London or a County Court near to where you live or trade.

A petition can be presented against you even if you are not present in England or Wales at that time, providing you normally live in, or have a recent residential or business connection with, England or Wales.

If you want to make yourself bankrupt you should contact your local Court. They can give you the name, address and telephone number of the nearest County Court that deals with bankruptcy.

The address and telephone number of your local County Court is listed under 'Courts' in the phone book, where you should look for ‘civil Courts - County Courts' and not ‘magistrates' Courts’.  However, you will need to contact the Court to find out if it has jurisdiction to hear a bankruptcy case.

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What will happen at Court?

The Court will either hear your petition straight away or arrange a time for the Court to consider it.

If English is not your first language and you need an interpreter, the Court will not be able to help you find one. You will have to do this yourself and pay interpreter's fees.

At the hearing the Court can do one of four things:
Stay (delay) the proceedings - often because the Court needs further information before it can decide whether to make a bankruptcy order.

Dismiss the petition - perhaps because an administration order would be more appropriate.

Appoint an Insolvency Practitioner - if the Court thinks that an Individual Voluntary Arrangement would be more appropriate. This will only be possible if your assets are more than £2,000; your unsecured debts are less than £20,000; and you have not been bankrupt or made an Individual Voluntary Arrangement in the previous five years. If you do not wish to enter into such an arrangement, you should inform the Court.

Make a bankruptcy order. You will be bankrupt the moment the order is made by the Court.
As well as a bankruptcy order, the Court may issue a certificate of summary administration - as long as your unsecured debts are less than £20,000 and in the previous five years you have not been bankrupt or made an Individual Voluntary Arrangement with your creditors. If the Court issues this certificate, it will make the administration of your bankruptcy quicker and simpler.

The Official Receiver will then be your Trustee in bankruptcy (see below) and you will automatically be freed from bankruptcy (known as 'discharged') two years from the date of the bankruptcy order. (If a certificate of summary administration is not made, your discharge from bankruptcy would usually be three years from the date of the bankruptcy order.)

Who deals with bankruptcy cases?

The Official Receiver is a civil servant and an officer of the Court. He is responsible for administering bankruptcies and will act as a Trustee of your estate unless a private sector Insolvency Practitioner is appointed.

One of the Official Receiver’s main duties is to investigate your financial affairs for the time before and during your bankruptcy.

An Insolvency Practitioner can be appointed Trustee instead of the Official Receiver, they must be licensed and are usually accountants or solicitors. The Insolvency Practitioner is then responsible for the disposing of your assets and making payments to your creditors.
What are the duties of a bankrupt?
When a bankruptcy order has been made, you must provide the Official Receiver with information relating to your financial affairs such as, a list of your assets (property, pensions, insurance policies etc), amounts of each debt and to which creditor they are owed to, within 21 days.

Any assets are then to be handed over to the Official Receiver along with any bank statements and insurance policies relating to your property and financial affairs.

Any assets and income increases obtained during the bankruptcy should be declared to the Trustee.

You must not obtain credit of £250 or more from any person without first disclosing the fact that you are bankrupt.

Any bank or building society accounts must no longer be used.

You must not make any direct payments to your creditors.

You may also have to attend Court to explain why you are in debt. If you do not co-operate, you could be arrested.

What are the effects of Bankruptcy?

Once you have been made bankrupt all assets belonging to you come under the control of the Trustee, including your home.

Where the home is co-owned, the debtor’s interest can still be realised, but a right of occupation period of twelve months is allowed for the disposal of the property if a co-owner, family or dependents of the debtor occupy it. At the end of the twelve-month period, the property will almost certainly have to be put up for sale, enforced by a Court order if necessary.

The other main disadvantages of bankruptcy are the constraints forced upon the bankrupt and the stigma of having to declare oneself as a bankrupt for certain transactions.

A bankrupt may not:
Obtain credit of £250 or more alone or jointly with another person without disclosing his or her bankruptcy
Conduct business directly or indirectly in any name other than that in which he or she was made bankrupt
Be involved directly or indirectly in promoting, forming or managing a company without the Court’s permission
Hold certain public offices
When a bankrupt is discharged these constraints are ended.

A bankrupt may open a new bank or building society account but should disclose the fact that they are bankrupt. The bank or building society may then impose conditions and limitations. Overdraft facilities or chequebooks must not be obtained, as they are likely to be dishonoured. The bankrupt must inform the Trustee of any funds available in the account, which exceed the normal living expenses, in order for the Trustee to distribute among the creditors.

How does bankruptcy affect your credit rating?

Your bankruptcy will be registered with credit reference agencies and remain on your file for a minimum of six years. After this time you may still have to declare your previous history, particularly when applying for a mortgage

How long does Bankruptcy last?

A bankrupt may be discharged (freed from obligations under the bankruptcy order) after the one year.

Discharge is not necessarily automatic and can be postponed by the Court. In addition, the discharge may not necessarily free that person from certain all liabilities and does not mean that unrealised assets will be safeguarded.

Discharge releases the bankrupt from most of the debts owed at the date of the bankruptcy order. Exceptions include debts arising from fraud, certain crimes and fines. Certain other debts such as damages or personal injury or money owed under family proceedings (such as maintenance) will be released only if the Court agrees.

If you have been declared bankrupt before, within the last 15 years, you will not be automatically discharged. You will only be able to apply to the Court for a discharge 5 years after the date of your current bankruptcy order; even then the Court may refuse or delay discharge.

What are the main changes of the new legislation?
The main changes are as follows:-
In certain circumstances you may be discharged from bankruptcy after one year (previously the minimum was two year’s)

A limit of three years may be placed on the Trustee’s rights to realise equity in your home. (previously this was open ended).

Harsher penalties imposed on those who are considered to have brought about their bankruptcy through reckless or irresponsible behaviour. Restrictions after bankruptcy could last for a further two to fifteen years.

I have been living abroad but have large debts in the UK. How will this affect my credit rating in the UK and should I file for Bankruptcy?

Any debts that you have in the UK will remain on your credit reference file for six years after the last activity on the account (this could be a repayment). Bankruptcy orders will also be on your file for six years or even longer. Once discharged from bankruptcy you should not have a problem obtaining credit after the six-year period although you may be restricted in the number of mortgage lenders who will consider you. If any transaction have taken place from your current address it is possible that your creditors may try to trace you there.

Should you wish to apply for bankruptcy in the UK then you will have to do this in person at an English or Welsh County Court. This is only possible for the first three years’ in which you reside abroad.