Bankruptcy & Debt Relief Orders

If we are unable to offer you a solution that we feel would suit your financial solution, we may recommend Bankruptcy or a Debt Relief Order. Although it is not possible for us to administer these products for you, we may be able to assist you in finding the right information and completing your application.

Bankruptcy

Bankruptcy is a formal insolvency procedure. You can apply to go bankrupt if you can demonstrate that either your debts exceed your assets or you are unable to pay your debts when they are due. There is no restriction on the level of debt you must have to apply.

We cannot assist you in petitioning for bankruptcy but you can apply online through the central government website, GOV.UK.  You'll receive your decision online, usually within 28 days and, if your bankruptcy is approved, you'll be contacted by the Official Receiver (or trustee in bankruptcy) who will oversee your bankruptcy and will want to know about your financial history.

If you have surplus income after meeting your essential household and personal expenses, you will have to make payments out of your income for up to 3 years.

In addition you will have to hand over any assets you have to the trustee in bankruptcy to be sold to repay your creditors. This does not include everyday items you need for your reasonable domestic needs but is likely to include your house if it can be sold for more than the mortgage outstanding.

Bankruptcy usually lasts for 1 year, and once you have been freed (discharged) from your bankruptcy, you are released from your debts (with certain exceptions).

Advantages

  • Debts are written off at the end of one year.
  • Creditors can’t take further action unless the debts are secured on your home or other property.
  • It allows you to make a fresh start after only a year.
  • You may be able to avoid having to sell your home if your spouse, partner or a relative can buy your share of its value after any debts secured on it have been paid.
  • You can apply online and pay in instalments

Disadvantages

  • Your bankruptcy is entered on a public register
  • If you apply for your own bankruptcy, you will have to pay an adjudicators fee and deposit totalling £680
  • You will remain liable to pay certain debts – in particular:
    • student loans;
    • fines;
    • debts arising from family proceedings; and
    • budgeting loans and crisis loans owed to the Social Fund
  • If your situation changes for the better you will be expected to pay more to your creditors
  • Any business you have will almost certainly be closed down
  • Your employment may be affected
  • Certain agreements such as hire purchase agreements and mobile phone contracts may come to an end
  • You can’t act as a director of a company or be involved in its management unless the court agrees
  • You will be committing an offence if you get credit of £500 or more without disclosing that you are bankrupt
  • You may have a bankruptcy restrictions order made against you for 2 to 15 years if you acted irresponsibly, recklessly or dishonestly

DEBT RELIEF ORDER (DRO)

A debt relief order is only available to individuals who have very little disposable income available to pay to their creditors, have few or no assets, and a limited level of debt.

You may be eligible for a Debt Relief Order if you owe less than £20,000 in total to your creditors, you have £50 or less left over each month after your essential bills and outgoings have been paid, your car (if you have one) is worth less than £1000 and your other assets don’t exceed a value of £1000.

A DRO will last for 1 year, and once your DRO has ended you are released from your debts (with certain exceptions). You need to approach an approved intermediary for the application to be put forward, and you will need to pay a fee of £90.

Advantages

  • Your debts will be written off at the end of the DRO.
  • None of the creditors listed in the DRO application can take further action against you without the court’s permission.
  • After 1 year your debts will be written off
  • The fee (£90) is affordable and can be paid in instalments but the fee must be paid before the application can be made.
  • You will keep your assets and a vehicle as detailed above.
  • The approved intermediary ensures that you are given appropriate advice and that you fit the criteria for a DRO.

Disadvantages

  • Your DRO is entered on a public register.
  • Your DRO will remain on your credit file for 6 years.
  • You can’t have a DRO if you have an existing bankruptcy order, an IVA, are subject to bankruptcy restrictions, or you have had a DRO in the last 6 years.
  • You will remain liable to pay certain debts – in particular:
    • student loans;
    • fines;
    • debts arising from family proceedings; and
    • budgeting loans and crisis loans owed to the Social Fund.
  • Your employment may be affected.
  • Your DRO could be revoked (withdrawn) if you don’t co-operate with the official receiver during the year that your DRO is in force.
  • You can’t act as a director of a company or be involved in its management unless the court agrees.
  • You will be committing an offence if you get credit of £500 or more without disclosing that you are subject to a DRO.
  • You may have a debt relief restrictions order* made against you for 2 to 15 years if you acted irresponsibly, recklessly or dishonestly.
  • You can’t have a DRO if you own your own home. Even if you have negative equity.

* An order that will place restrictions similar to those in force while subject to a DRO, which the official receiver may apply for.