“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 they owe. Or that they don’t meet the legal criteria. Or they have just borrowed some money.
But less than 1% of bankruptcy applications are rejected by the Insolvency Service, so you need to stop worrying and find out the facts.
The common worries
“A bankruptcy check said I should have an IVA”
Some firms prey on these sorts of worries, see Making Bankruptcy sound scary.
Often they ask you to put in some details of your debts.
The websites that offer this sort of “check” make all their money by getting you to sign up to an IVA. This is not a proper check about whether bankruptcy is a good option for you. And it is certainly not a check that you will “qualify” for bankruptcy.
“Do I owe too little to go bankrupt?”
There is no minimum amount you have to owe in England and Wales to go bankrupt.
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… of course that isn’t normally a sensible idea!
If you want to find out whether bankruptcy is a good option for you call National Debtline on 0808 808 4000, who also has a factsheet on bankruptcy.
If National Debtline says that bankruptcy is a good option for you, you can be sure that you are “insolvent” and your bankruptcy application will be accepted.
“I may inherit some money”
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 – see the section below on “Do you have a better alternative?”
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.
Not enough income? Or too much income?
A reader was told they didn’t have enough income to go bankrupt.
It isn’t right! You don’t have to have a budget that balances to go bankrupt. But I think 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.
At the other end of the spectrum, you may worry that you have a good job and you can pay some money to your debts, just not all of it. But you won’t be refused bankruptcy unless you can pay all of your debts. Talk to a debt adviser about whether you have a better option to bankruptcy if you are worried about this.
“I have very recently taken out credit and can’t repay it”
Again this will not mean your bankruptcy application is refused.
A small number of people get a Bankruptcy Restriction Order if the official Receiver thinks you have been “reckless”. See Will you get a Bankruptcy Restriction Order (BRO)? Does it matter? for more about this.
The reasons some bankruptcy applications are refused
When you submit your online bankruptcy application, it is sent to the Insolvency Service’s Adjudicator for approval.
The Adjudicator’s office will check:
- 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.
These checks are simple formalities for the vast majority of people applying.
The Insolvency Service itself describes having your application rejected as “an unlikely event”. It happens to less than 1% of applications. The most common reason for one being rejected is the first one – that the person applying hasn’t lived in this country for long enough.
What happens if a bankruptcy application is refused?
If your bankruptcy application is rejected, you will be sent a Notice of Refusal. This will explain why the adjudicator did not make you bankrupt.
You can ask for this decision to be reviewed by the Insolvency Service. Don’t delay in doing this, but I suggest you should first talk to National Debtline about what to say and the points to make.
If this review still results in a rejection, you can appeal to the court. Again I suggest you need help to do this.
You don’t lose all your bankruptcy fee if an application is rejected. You will receive a refund of £550 – that is the £680 fees less the application costs of £130.
Do you have a better alternative?
The Official Receiver does NOT do a detailed check on whether bankruptcy is a good option for you or if you have a better alternative.
So you have to make sure that bankruptcy is your best option before you submit your bankruptcy application.
Your situation now may feel terrible, after Covid-19 you may have lost your job or seen your business fold. But rushing into any form of insolvency – bankruptcy, Debt Relief Order or an IVA if things may improve soon is often a mistake.
If things may realistically improve, then it is often better look at a temporary solution now. For example you could make token payments of £1 a month. Or if you can pay more, look at a debt management plan. Token payments or DMPs are good temporary plans – they treat all your creditors fairly and interest and charges should normally be stopped so your situation doesn’t get worse.
When there is little chance things will improve, you may still have better options than bankruptcy:
- If you owe less than £30,000, 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 a house to protect but if you are renting they are usually a much worse choice than bankruptcy, see compare IVAs and bankruptcy .
- people over 55 may have a pension they could access. 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.
If you think bankruptcy maybe your best option, it is always worth an hour of your time to talk to a good debt adviser about this.
Phone National Debtline on 0808 808 4000.