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Bankruptcy of Individual

The regulations regarding personal bankruptcy in England and Wales are governed by the Insolvency Act 1986. In Scotland, the bankruptcy procedure is entirely different, as is the application for bankruptcy filed with AiB (Accountant in Bankruptcy). On this page, we will only discuss the bankruptcy procedure in England and Wales.


How does the process of personal bankruptcy work?

It releases you from overwhelming debts, providing you with the opportunity for a "fresh start" (albeit with certain, sometimes costly consequences).

It fairly distributes your material assets among creditors.

Anyone working on a salary, engaged in self-employment, or involved in a partnership can become bankrupt. If your debts are truly high and you see no way to repay them, you should consider filing for bankruptcy.

An exception applies to individuals who own a Ltd OR LLP company or serve on its board. Such individuals CANNOT DECLARE BANKRUPTCY.

Benefits of declaring personal bankruptcy

From the date you receive the bankruptcy order, your creditors will have no right to demand payment of their debts from you.

You will get rid of all debts except for:

  • maintenance payments
  • court fines imposed by Magistrate Courts
  • student loans
  • overpaid or fraudulently obtained state benefits
  • fines imposed by the Police

Consequences of personal bankruptcy

  • All your valuable items can be sold. This includes your home, car, and other valuable possessions.
  • Your bankruptcy will be announced in the local press and in the "London Gazette."
  • When applying for credit exceeding £500, you must inform the lender that you are undergoing the process of personal bankruptcy.
  • Obtaining employment in certain professions (related to finance) will be difficult.
  • You will not be able to be the owner or partner of an Ltd company without the court's permission.
  • You will not be able to change the name of your company that you used before declaring personal bankruptcy. If you do so, you must inform your clients about the personal bankruptcy.
  • Your bank accounts will be frozen. If your income is deposited into any of them, you will need to contact the bank to unfreeze them. You can open a basic account at another bank after obtaining the decision on personal bankruptcy.
  • If you have a stable job and your monthly income significantly exceeds your monthly expenses, the Official Receiver may propose an Income Payment Agreement (IPA). It's a "proposal you can't refuse" and involves paying the Official Receiver the surplus amount for 3 years from the date of declaring personal bankruptcy.
  • If you have a life insurance policy, the Official Receiver has the right to assign it, and unfortunately, if something happens to you during the restriction period, part of the compensation will be used to pay off your obligations.

All the above restrictions (except IPA) last for 12 months from the date of receiving the bankruptcy order. After that, they simply disappear, and you are no longer listed in the official bankruptcy register. Unfortunately, in agencies maintaining records of unreliable debtors (Experian, Equifax, and TransUnion), the annotation of your bankruptcy will remain for 6 years, and your credit score will be low. All the above restrictions may seem burdensome for the bankrupt. However, an experienced Debt Adviser, leveraging their knowledge and expertise, can mitigate them to the fullest extent. IPA can also be shortened or terminated.

Furthermore, the Official Receiver has the right to shorten or extend the restriction period. This also depends on the bankrupt's conduct during this period and the experience of the professional assisting them.

How to declare personal bankruptcy? Only electronically, after creating your own account on the Insolvency Service website.

Costs associated with declaring personal bankruptcy:

  • Court fee £680, payable by card or by depositing it into the court's account at a bank.
  • Legal services fee. In our case, it amounts to £1200 – covering the preparation of the application, its submission, and full legal assistance during the bankruptcy proceedings.

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