Bankruptcy

Many people see bankruptcy as the ultimate disgrace.

But, in the US, it is viewed as less shameful - some banks are happy to supply business loans to bankrupts, as they believe they will have learnt from the experience.

While there is more caution in the UK, you can survive and, indeed, thrive after bankruptcy. But it should very much be viewed as a last resort.

Generally you will be automatically freed from bankruptcy - known as discharged - after three years.

If your bankruptcy order refers to a certificate of summary administration, you will be discharged after two years.

You will automatically become free from bankruptcy if the court cancels the bankruptcy order. This would normally be where your debts and the fees and expenses of the bankruptcy proceedings have been paid in full, or the bankruptcy order should not have been made.

Bankruptcy remains a serious matter and you should think carefully before choosing it as an option.

Why choose bankruptcy?

Bankruptcy means freedom from debts you cannot pay - you pass them on to a trustee, who deals with creditors.

It will mean the closure of any business you are running, dismissing any employees and, in some cases, the loss of possessions and home. It may be best to declare yourself bankrupt if you have no assets.

You can be made bankrupt in two ways. Firstly by debtors' petition. If you want to make yourself bankrupt, you must contact your local court where they will give you the details of the nearest county court dealing with bankruptcy. You will then pay a ?120 fee and a ?250 deposit. Bankruptcy by creditors' petition can take place if people are owed at least ?750.

Your case must be dealt with either by the official receiver or an insolvency practitioner.

What happens afterwards?

Once you have been declared bankrupt, this will affect the way you are viewed by the financial services industry.

It can also affect your professional standing. For example, solicitors cannot practice law after declaring bankruptcy. Also, you cannot become an MP, JP, or a pension or charity trustee.

Alternatives to bankruptcy

A court can set up an administration order to settle smaller debts by regular payment. Administration orders are only available to people with debts of less than ?5,000 and who have a CCJ against their name. The debtor has to make the application.

Alternatively, you could go for a formal voluntary arrangement that works in a similar way to the above, but will involve paying fees. Both these mean you retain control over your assets. If you choose this route, make sure you enlist the services of a professional insolvency adviser. There are unqualified shysters around who will make matters even worse.

Who will know I am bankrupt?

It will be published in an official publication, The London Gazette, and also a local or national newspaper. In addition, the official receiver will give written notice of the order to organisations, such as the local authorities, utility suppliers and courts.

What can I keep if I'm bankrupt?

You can keep any tools, books, vehicles and other items of equipment needed personally in your employment or business. You will also be able to keep your clothing, bedding, furniture and basic household items.

Who do I need to tell?

Your mortgage lender - they may repossess if you can't keep up payments and will certainly keep a close eye on the way you are managing your affairs. It is also important to note that a home is considered an asset and will be sold by ther Receiver or Administrator if necessary. Utilities companies may want a deposit in advance, rather than allowing you to pay in arrears.

If you choose to open a new bank or building society account, you must reveal your status. You cannot have an overdraft without informing the bank that you are bankrupt or write cheques that are likely to bounce. You must tell your trustee about any money you have in the account that is more than you need for basic living expenses.

For help contact:
· The Citizens Advice Bureaux or Bankrupts Advisory Service (01482 633035)
· National Debtline (0808 808 4000)
· The Bankruptcy Association on (01524 64305)
· The Insolvency Service enquiry line is open between 9 and 5pm Monday to Friday on 020 7291 6895.