“Can I go bankrupt?” is a very common question. People worry that their bankruptcy application will be rejected because their debts aren’t large enough or the Official Receiver will say they should repay the money or that they don’t meet the legal criteria.
Some firms prey on these sorts of worries, see Making Bankruptcy sound scary. The helpful sounding box below is an example of this. If you click on it, you are asked to put your details into a calculator. It won’t tell you if you “qualify for bankruptcy” at all, instead they will try to sell you an IVA.
“Do I owe too little to go bankrupt?”
There is no minimum amount you have to owe in England and Wales. A creditor can only make you bankrupt if you owe them at least £5,000, but you could choose to go bankrupt owing less than that… but of course that would not normally be a sensible idea!
If you want to find out whether bankruptcy is a good option for you call National Debtline, who also have a factsheet on bankruptcy. If you are told that bankruptcy is a good option for you, you can be sure that you are “insolvent” and your bankruptcy application will be accepted.
“What about money I may inherit?”
You may be worried that your bankruptcy will be turned down because you are named in someone’s will.
If the person has already died and you are waiting to get your inheritance then you should probably not go bankrupt as the inheritance (money or house) will go to the Official Receiver. Instead opt for a temporary debt management plan and look again at your options when the estate is distributed – it may be possible to use an inheritance to clear a lot more debt with full and final settlement offers.
But if the person hasn’t died, they could change their will and leave it all to the local Cats Home. So this future inheritance isn’t an asset of yours at the moment and it won’t have any effect on your bankruptcy application.
If you are worried that the person may die soon, then read this article on Inheriting Money When Your Are Bankrupt.
“I’ve been told I don’t have enough income!”
A reader was told this. It isn’t right – you don’t have to have a budget that balances to go bankrupt.
But I suspect he was being told that he needs to sort other things out first before bankruptcy, see Can you go bankrupt with no income? for details.
The alternatives to bankrupcty
If you owe less than £20,000, are renting and have little spare income each month then you may qualify for a Debt Relief Order (DRO). A DRO will wipe out your debts after a year, you don’t have to make any payments to it and the fees are only £90 – a lot less than bankruptcy.
Individual Voluntary Arrangements (IVA) are complicated long-term legal contracts. In an IVA you will make payments for longer than in bankruptcy – 80% of people actually don’t make monthly payments at all in bankruptcy. IVAs have some advantages if you have assets such as a house to protect but if you are renting they are usually a worse choice than bankruptcy. You should read about IVAs and look at Debt Camel’s page comparing IVAs and bankruptcy as the choice is not always simple.
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 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. If your pensions are large and you can access them, you may not technically be “insolvent” – check this with a debt adviser before applying for bankruptcy. Bankruptcy and Pensions looks more at this unusual situation.
Why a small number of bankruptcy applications are refused
When you submit your online bankruptcy application, it is sent to the Insolvency Service’s Adjudicator for checking. The Adjudicator’s office will be looking to verify that:
- the right “jurisdiction” is used – this is to stop people coming to England just to go bankrupt;
- the form was submitted by the correct person, not someone pretending to be you;
- you don’t already have a bankruptcy petition pending;
- the debts you have listed weren’t included in a previous bankruptcy petition;
- to check you aren’t over 55 with a large money purchase pension you could access; and
- to see if you are “insolvent” – this is a quick check that you can’t pay your debts now. You won’t be told “You could work for 12 years and clear them in that time so you can’t go bankrupt” – that doesn’t happen”.
Find out more about the new process in How to complete the online bankruptcy application.
Most of these checks will be simple formalities for the vast majority of people applying. The Insolvency Service itself describes having your application rejected as “an unlikely event”. The most common reason for one being rejected is the first one – that the person applying hasn’t lived in the country for long enough.