Stephen Gold: You can apply for your own bankruptcy, but it will cost you £680Stephen Gold is a retired judge and author who has written two
Stephen Gold: You can apply for your own bankruptcy, but it will cost you £680
In a new four-part guide, he explains what to do if you face bankruptcy and its very serious fallout – and the best ways to free yourself from creditors and clear your debts.
If you have always dreamed of being a member of a local flood defence committee, avoid bankruptcy. The dream will be thwarted for at least one year.
Otherwise, bankruptcy may be your salvation. An end to the incessant flow of threatening letters, county court claim forms and bailiffs at the door.
People no longer shun and avoid bankrupts and point at them in the street. Bankruptcy has ceased to be the stigma it once was.
The ways you might go bankrupt
If you are overwhelmed by debt, the possibility is that one of your creditors will eventually apply to the court to make you bankrupt.
There are various ways to challenge this, if you are opposed to what they are doing.
Furthermore, no creditor can start bankruptcy proceedings against you unless you owe them at least £5,000.
The figure used to be £750, and not all creditors have cottoned on to the change.
Given the £5,000 rule, some canny individuals with bank notes under the bed will pay off the entirety of each debt except for £4,999.99.
However, it is possible for a creditor owed less than £5,000 to gang up with other creditors, so that they are owed at least the minimum amount between them, and jointly apply for bankruptcy.
But what if none of your creditors will do the decent thing and bankrupt you?
If none of your creditors will do the decent thing and bankrupt you, you can embark on a DIY job. Having been bankrupt a couple of times previously should not prove to be a legal obstacle.
The procedure now is that you apply for your own bankruptcy online to the Insolvency Service, and in 999 out of 1,000 cases you will not be required to attend at court.
There is a potential problem, though. Money. You will have to come up with fees of £680.
If one last shot at the cash machine is unsuccessful, you cannot persuade anyone to lend you the money (‘No, I’m afraid you won’t get it back. I’ll be bankrupt!’) and a charity won’t help, you can pay in instalments – but you will have to notch up the full £680 before the process will be formally started.
The £5,000 threshold for a creditor to seek your bankruptcy does not apply when you initiate bankruptcy yourself. Then, your liabilities must exceed your assets.
If you owe no more than £30,000, then a debt relief order may be for you.
It’s a sort of League Division Two form of bankruptcy with similar outcomes but cheaper, weighing in at £90.
Like bankruptcy, you get it through the Insolvency Service and this time through an approved intermediary, such as Citizens Advice.
However, it is not available if your assets are more than £2,000, with any car you own worth no more than £2,000 being disregarded.
And it is also not available if the level of your monthly net income, after deduction of normal household expenses, is more than £75.
Released: Bankruptcy can mean an end to the incessant flow of threatening letters, county court claim forms and bailiffs at the door, says Stephen Gold
There are upsides to bankruptcy
Once one year has been clocked up from you being made bankrupt, you are generally automatically released from all the debts you had incurred beforehand, and creditors can do nothing about trying to get their money in the meantime.
Well, almost all of the debts.
It doesn’t include any maintenance owed to your spouse or civil partner (current or former); money due under a court order in a family case where you need to hand over a lump sum or pay costs; fines; child support arrears; anything you owe under a court judgment for damages for personal injury; and student loans.
Personal pensions are generally safe from creditors, though the position may not be so straightforward for some final salary schemes.
This means that you cannot be forced to take a lump sum under a pension scheme for the creditors’ benefit. But, if you did, the amount could be taken into account for the purposes of one of those income payments orders or agreements which we look at below.
Why you might want to avoid bankruptcy
There are disadvantages with bankruptcy too – and not just being barred from sitting on a flood defence committee.
Should you own anything, you will eventually lose it in so far as it is needed to pay off what you owe.
That includes your interest in a house or flat in which you live, should that interest be worth more than £1,000, after your mortgage debt has been deducted from market value.
But your partner (or cigar-smoking rich uncle, if you are lucky enough to have this or any other kind of generous benefactor) might be willing to stump up the cash to settle the creditors’ claim to that interest.
A debt and despair escape kit: Ex-judge Stephen Gold explains what happens when you face bankruptcy, and want to clear your debts
Also safe from being taken away are tools, books, vehicles – though if it is a Maserati, you may be expected to replace it with a used Skoda – and other equipment which is necessary for use in your work or business, along with clothing, bedding, furniture and household equipment needed for the basic domestic needs of you and your family.
You can expect an income payments court order or making an income payments agreement with the trustee in bankruptcy (often the official receiver) who deals with winding up your affairs.
That is where you have some spare dosh after the basic living requirements for you and your family have been met.
Via monthly payments, that spare will go towards paying off your debts – but any order or agreement will last for just three years.
Other restrictions during the one year following bankruptcy are a ban on being a company director or involved in a company’s management without the court’s permission, or seeking credit of £500 or more without disclosing you are an undischarged bankrupt.
In fact, the bankruptcy could stymie obtaining credit for some years. There are lenders who will still give mortgages to ex-bankrupts, albeit not at the best rates in the West.
Incidentally, should you have been culpable in reaching bankruptcy, the one-year restrictions might be extended so that they apply for between two and 15 years, even though you have been discharged from bankruptcy and released from your debts.
Where can you look for financial assistance? The ‘Help with fees’ scheme
This scheme excuses the payment of the whole or part of a court fee (and certain tribunal and probate fees) for those regarded as unable to cough up.
It is not available if you are applying for your own bankruptcy. If it was, everybody would qualify.
The financial thresholds for qualifying for this help are changing on 27 November 2023.
Should you want to start a genuine court claim which might generate cash you could use to pay off debts, and hope to take advantage of the scheme, it could be your advantage to do that before the changes come into effect or it could be to your advantage to wait.
Civil court fees for commencing proceedings range from £35 to £10,000 depending on the claim’s value.
You are expected to apply for help at the same time as you start the case and not before.
Those on benefits will automatically be granted help, now and in the future. For the lower fees of up to £1,250, the amount of savings and investments allowed rises from £3,000 to £4,250.
Those aged 66 or over can qualify for help whatever the size of the fee so long as their savings and investments do not exceed £16,000. Currently, only those aged 61 or over can benefit in this way.
Where your savings and investments are too high, you will be out of the scheme, however low your income.
If your savings and investments are within the limits, then your income has to be looked at and here the thresholds are rising.
For example, if single, you will be able to have a gross monthly income of up to £1,420 -an increase of £250 – and qualify.
And, where gross income varies from month to month, you will be able to take an average over the three months before applying for help if that would give a lower income than for the most recent month.
IN PART TWO… Stephen Gold explains how to stave off your creditors and buy more time to do the honourable thing and pay your debts.