Personal bankruptcy

Choosing personal bankruptcy means admitting you can't afford to repay your debts and asking to be released from your obligations.

In other words, it can give you a 'fresh start' - but only if you're prepared to give up most of your valuable possessions.

What is bankruptcy?

Bankruptcy is a legal procedure that lets people clear their debts and 'start over'. There are two main ways you can be declared bankrupt.

• You can request it yourself. This is known as a debtor's petition.
• Anyone you owe more than £750 can try to make you bankrupt. This is known as a creditors' petition.

Either way, if you are declared bankrupt, you will no longer have to deal with your unsecured debts - or your unsecured creditors. You will be appointed an Official Receiver (OR), and they will take control of your assets (your money and your property) and make sure your creditors all receive a fair share of your assets.

How do I enter into personal bankruptcy?

You can enter personal bankruptcy by asking a county court to declare you bankrupt. You'd need to download a debtor's petition from the Insolvency Service website or obtain one from any county court which has 'bankruptcy jurisdiction'.

You would need to pay £150 in court fees, although you may be able to have this waived if you meet certain criteria. You would also need to pay a deposit of £360 for the Official Receiver (the officer of the court who would deal with the bankruptcy). This cannot be waived. If the court decides that you should be made bankrupt, a bankruptcy order will be made - and your bankruptcy starts.

How long does personal bankruptcy last?

Once the bankruptcy order has been made, you'll no longer need to make payments to your unsecured creditors. Other debts may be excluded such as fines, and will still need to be paid. Bankruptcy does aim to make sure your creditors receive at least some of what you owe them where possible, so your assets (property, valuable possessions, etc.) may be sold and the money raised split between your creditors.

Depending on your financial situation, you may need to make regular contributions towards your bankruptcy debts - normally for 3 years. You may have to sign an Income Payments Agreement, promising to do this. (If you won't sign it, or don't keep up with the payments, an Income Payment Order may be issued, which means the money can be taken directly out of your income.

You should be discharged from bankruptcy within a year, unless the court believes you haven't cooperated with your Official Receiver, haven't provided all the information required, or haven't been completely honest in some way. Once you're discharged, your personal bankruptcy will be over - although payments to your Income Payments Agreement / Order (if one was issued) will continue.

Your obligations when you're bankrupt

If you enter into personal bankruptcy, you will be required to:

• supply the Official Receiver with details of your finances, your assets and your creditors
• hand your assets over to the Official Receiver, along with any accompanying paperwork (bank statements, insurances policies, etc.)
• stop using any credit cards and bank / building society accounts you may have
• tell the creditor that you're an undischarged bankrupt if you try to obtain any credit over £500
• inform your trustee (the Official Receiver or your Insolvency Practitioner) if you receive any new income or assets while your personal bankruptcy is in progress
• stop making payments to your creditors (with some exceptions: outstanding child support payments, for example, or mortgage arrears).

Why is it called 'personal' bankruptcy?

The term 'personal bankruptcy' simply means that you're an individual, not a company.

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