“Can I go bankrupt?” is a very common question. People worry that the judge will refuse their bankruptcy petition because their debts aren’t large enough or they should repay the money or that they don’t meet the legal criteria.
Some firms who refer people for IVAs or fee-charging DMPs prey on these sorts of worries, as this type of advert shows. If you click on it, you are asked to put your details into a calculator, and at the end of it you won’t be told whether you “qualify for bankruptcy”, that will be ignored! Instead they will try to sell you an IVA. (There is a big clue in this example that they aren’t going to talk about bankruptcy at all – “standard criteria for UK citizens” is nonsense because Scotland has completely different rules and procedures for bankruptcy.)
Do I owe too little to go bankrupt?
There is no minimum amount you have to owe in England and Wales. If you owe more than you can repay immediately then it is your legal right to go bankrupt. So that is almost everyone with debts!
Of course this doesn’t mean that bankruptcy is a sensible option for everyone, which is why the judge will ask you if you have taken debt advice. It is not the judge’s job to decide if bankruptcy is your best alternative.
If you want to find out whether bankruptcy is a good option for you, then the bankruptcy pages on Debt Camel are a good starting point and after reading those I suggest you visit your local Citizens Advice Bureau or call National Debtline, who also have a factsheet on bankruptcy.
The alternatives to bankrupcty
If you owe less than £5,000 you should check whether you meet the criteria for an Administration Order – these are very rare because you must have a CCJ and owe less than £5,000 but if you do, then go for it!
If you owe less than £15,000 then a Debt Relief Order (DRO) may be appropriate (this limit is being increased to £20,000 in October 2015). Bankruptcy has no advantages over a DRO so if you qualify for one, then go for that not bankruptcy.
Individual Voluntary Arrangements (IVA) are more complicated as the choice between an IVA and bankruptcy is not clear-cut for some people. You should read about IVAs and look at Debt Camel’s page comparing IVAs and bankruptcy.
If you are over 55 and have a pension that you could access, then using this money to repay your debts could be a good idea. You may be able to get full and final settlements which would make this cheaper.
Are you sure the judge won’t say I have to repay the money?
Yes. Look at what will happen in court according to the Insolvency Service’s booklet on “How to Petition for your own bankruptcy.” That says the court can do one of 5 things – here the Insolvency Services words are in blue and my comments are added on in black:
- Stay (delay) the proceedings – often because the court needs further information before it can decide whether to make a bankruptcy order. This might happen if you say you haven’t received any advice on bankruptcy. Your petition is not being rejected, one of the other 4 has to be chosen at the next hearing,
- Dismiss the petition – perhaps because an administration order would be more appropriate. Administration orders are very rare as described above.
- Make an order referring you to an approved intermediary if it believed that a DRO may be appropriate. If you meet the DRO criteria, then this is a simpler and cheaper alternative giving you the same end result as bankruptcy.
- Appoint an insolvency practitioner – if the court thinks an individual voluntary arrangement would be appropriate. … If you do not wish to enter into such an arrangement, you should inform the court. The key point is that if you don’t want an IVA the court can’t decide that you must have one. The decision is yours, not the judge’s.
- Make a bankruptcy order … you will become bankrupt the moment the order is made by the court.
So the judge isn’t going to say that you don’t owe enough, that you should never have taken out that loan and now you have to repay it, that you aren’t broke so you shouldn’t be going bankrupt or any of the other things you might be worried about.
The government is keen to reduce the costs of the courts and Insolvency Service. If petitions were going to be rejected, then this would be spelled out so as not to waste court time. But, unless you should have an Administration Order or a DRO instead, your petition isn’t going to be rejected.
*** Update – if you are over 55 with a large personal pension pot, your situation may be more complicated – read this – but this won’t affect many people.