What Debts Does Bankruptcy Cover?
The use of bankruptcy debt solutions is on the rise, with 16,582 issued in 2018 – representing a 9.8% increase on the year previous. Yet despite how common bankruptcies are, there are many misunderstandings as to how this form of debt solution works and what debts it can cover. In this guide, we tackle the latter – working our way through which debts bankruptcy could lift from your shoulders.
Bankruptcy Debt – Debts that AREN’T Written Off
- Magistrate court fines
- Any payments a court has ordered you to make as per a confiscation order
- Debts you owe because of the personal injury or death of another person
- Social fund loans
- Maintenance payments and child support payments
- Student loans
- Secured loans and other secured debts, such as debts secured with a charging order
- Certain benefits/tax credits overpayments, where this is the result of fraud
Bankruptcy Debt – Debts that ARE Written Off
Bankruptcy is a debt solution that may be suitable if you owe more than £5,000, and can cover:
- Credit cards
- Utility arrears
- Store cards
- Benefit overpayments (if they’re not fraudulent)
Key Question: Will Your Mortgage Be Included in Your Bankruptcy?
If you are made bankrupt, then the Trustee In Bankruptcy will look to realise any interest in your property. In the first instance, the Trustee may look to sell your share of the property to a spouse, another joint owner, or any third party who you can arrange to make an offer. If you are unable to arrange someone to purchase your interest, then the Trustee will look to take the appropriate steps to realise the interest, usually by applying to court for an order for sale, and then marketing and selling the property. If your family reside in the property with you, you will be given 12 months to reside in the property. Provided you comply with the Trustee, the Trustee may allow you to remain in the property until the point it is sold. If there is no equity in the property, then the Trustee may decide to take no further action with the property, and will assign your interest back to you. If you are facing already facing repossession hearings, then the Bankruptcy cannot put a halt to property repossession. That said, if your property is repossessed and sold, but falls short of paying off the mortgage/debts that are secured against it, whatever remains of the debt becomes unsecured. This means that this debt will then be included in the bankruptcy and written off as a Bankruptcy Debt
Bankruptcy Debts And Your Business
If your business debts have been taken out as part of a partnership, you’ll be able to put in joint applications for bankruptcy if, and only if, all partners agree to do so. If you’re considering this debt solution you should seek expert advice.
Key Question: Are Secured Debts Included in Bankruptcy Debt?
If you have a vehicle or other goods (such as white goods) on hire purchase or a logbook loan agreement, creditors usually cancel the agreement once the bankruptcy is approved. In this instance, the creditor would take the item back, with the debt included within your bankruptcy debt, which means that they’ll be no more payments to make.
In the rarer of instances, you may be allowed to keep the goods, however, you would need to continue to pay the debt.
In the case of mortgages and loans that are secured against your property, the debts would be included in the bankruptcy if (and only if) you:
- Give back the keys to your home, also known as ‘surrendering your property’, or
- If your house gets repossessed.
If there is sufficient equity in your home, you may be required to either sell it immediately or at a later date (this is known as a charging order). If your property is sold then you’ll be allowed up to 12 months to find a new home.
If you choose to remain in your home and the official receiver allows you to, then you’ll need to continue paying your mortgage as you normally would.
The Light at The End Of The Tunnel – Life Post-Bankruptcy
Bankruptcy usually lasts for 12 months. Once complete you’ll receive notification from the Official Receiver. The majority of debts that haven’t been repaid are usually written off.
It’s important to note that despite a bankruptcy being officially discharged, you may find that a Bankruptcy Restriction Order (BRO) is made against you. This is only made when you are found to have acted dishonestly, recklessly or fraudulently during the bankruptcy proceedings, with the effects including:
- Obtaining credit beyond £500 without Court’s permission is a criminal offence
- The Bankrupt must trade in the name under which they were adjudged bankrupt
- A prohibition from acting as a director of a limited company
What to Do If You Missed a Debt Off Your Bankruptcy Application
Usually missing a debt off your bankruptcy isn’t a problem. As long as it falls under the debts that bankruptcy can cover, it can be added to the agreement after it’s commencement.
Key Question: What Happens If Creditors Are Still Chasing You After You Go Bankrupt
If creditors continue to chase you for your bankruptcy debt you should be aware of what is legally expected of them, which is:
- they mustn’t do anything to try to get money from you, such as sending letters or debt collectors; however, they can still send you statements
- they mustn’t start any new court action against you unless they receive permission from the court beforehand
Creditors can still chase you for the debts that aren’t included in the bankruptcy debt (e.g. those listed above). Your landlord is also able to request any rent that is owed. While they can’t force you to pay, they may be able to evict you.
What to Do If Your Creditors Continue To Chase You as The Bankruptcy Trustee Isn’t Responding
If your creditors continue to contact you as either the official receiver or bankruptcy trustee isn’t responding, you should consider making a complaint about them failing in their role. This can be done via the Insolvency Service’s complaints procedure, in the case of the official receiver; or the Insolvency Service Complaints Gateway in the case of a trustee.