After you go bankrupt, you will have an interview with the Official Receiver, an Income Payments Arrangement may be set, and most people will be discharged after 12 months. This page looks at these events and how much difference going bankrupt makes to your life.
It is the last of three pages about bankruptcy. The first page dealt with the main questions people want answered and the second page looked at getting ready for bankruptcy and the bankruptcy application.
This page assumes you have already taken the decision to go bankrupt – but it’s useful reading even if you are still thinking through your options.
The interview with Official Receiver
The interview with the OR’s office will occur after your bankruptcy application has been approved – often a week or two later. It is usually a telephone interview but it can be at the OR’s offices. If you don’t want a telephone interview you can ask to have one in person. It will normally last for 3-4 hours. Occasionally there will be a need for a further interview.
Insolvency Service leaflet
You may be asked to complete a questionnaire in advance or to provide certain documents – in practice bring all your financial documentation, not just the items specified. If your interview is by phone, clear a large table and spread the stuff you may need out.
You may be asked questions about your bankruptcy application by one of the OR’s examiners, who will be mainly interested in what has happened in the last five years. You are likely to be asked in more detail what you spent money on.
Don’t worry if you haven’t got written records going back five years (who has?) or if you can’t remember something, or if you borrowed money on one credit card to pay the monthly payments on other debts – you know now that is foolish, but it is very common and it will not result in a Bankruptcy Restriction Order unless you have done it on an enormous scale for years.
You must co-operate with the OR and don’t try to conceal anything. If you do not co-operate you may be arrested and questioned in court and ultimately you may not be discharged in 12 months. At the interview the Perjury Act will be explained to you and you will have to sign to say that you have understood this.
They are asking all these questions so that they can feel reasonably sure that you are telling the truth and aren’t hiding anything. They aren’t judgmental – no-one is going to suggest that you shouldn’t have bought a new car or gone on holiday, even if you now think that was a stupid thing to have done. They won’t get angry or criticise. If you have ended up going bankrupt because of a business failure or a messy divorce, you may feel that you don’t get much sympathy; if you cry you will be given tissues, not hugs. They are professionals doing a job, not counsellors.
At the end of the interview you may be asked to find certain written records – statements, receipts etc. Just do your best – you are not going to get a Bankruptcy Restriction Order (BRO – see below for more about these) because your paperwork is missing bits provided the OR doesn’t think you are concealing anything.
Life when bankrupt
You should immediately stop making any payments to your unsecured creditors. You should carry on paying the mortgage and any secured loans unless you have left the property or intend to shortly. You should also carry on making payments towards any debts which will not be extinguished by your bankruptcy – check with the OR if you are unsure if a debt is being wiped out by bankruptcy or not.
The OR will inform your creditors of your bankruptcy but this can take a few weeks. If you are contacted by any of your unsecured creditors during this period, just quote your bankruptcy reference number to them – that will be the last time you hear from them.
If you have sufficient disposable income, you will have to make monthly payments to the OR under an IPA, see below. You must inform the OR of any assets and increases in income that you get before you are discharged, including any lump sums which you may receive such as a bonus, a redundancy payment or an inheritance.
You must stop using your existing bank accounts, credit cards etc straight away, but you are allowed to open a new Basic Bank Account.
You must not obtain credit of more than £500 without informing the creditor that you are bankrupt.
The tax owing for all tax years up to and including the tax year in which you are made bankrupt will be paid to the OR. So if you pay tax under PAYE, your tax code will be changed to a nil rate code for the remainder of the tax year. If you are self-employed, your duty to pay tax directly to HM Revenue and Customs will no longer apply to the tax year of bankruptcy or any previous year, except for self-employed workers in the construction industry, who will continue to have tax taken off their earnings at a flat rate of 18% after bankruptcy. You won’t be better or worse off because of these tax changes – you may get more through your pay packet, but that will increase the amount you pay to the OR. If you are unsure of what to do, ask the OR to explain.
Construction worker’s tools
If you are self-employed, your existing business is normally closed down and any employees will be made redundant. They may be able to make a claim to the National Insurance Fund for outstanding wages, redundancy etc. Any business assets will become the property of the OR unless they are exempt (eg tools that you will need to continue in business). However you can start to trade again, subject to restrictions. You are not allowed to be a Company Director and as mentioned above you are not allowed to obtain credit of more than £500 without informing the creditor that you are bankrupt. You will need to register again for VAT. If you would like to discuss how bankruptcy will affect you business, call Business Debtline.
If you want someone to buy out your share of the equity in your house, or any of your other assets, they should contact the OR as soon as possible after your bankruptcy order to progress this. If house prices rise, the amount that has to be paid will also increase.
Will I have to pay an IPA?
Most people don’t have to pay an IPA. In the last three months of 2015, only 13.4% of bankruptcy orders made resulted in an IPA – that is about 1 in every 8 people going bankrupt.
If, after looking at your monthly income and expenditure, you have over £20 of disposable income, you will be have to make monthly payments under an Income Payment Agreement (IPA). This is an amount which you will have to pay each month for three years from the date the IPA is made i.e. you will carry on making these payments after you are discharged. If you refuse to agree to an IPA, the OR can go to court and get an Income Payment Order set.
This may all sound very scary, but the Guidance Notes for the OR state:
Whilst the assessment of income and expenditure with regard to obtaining an IPA/IPO is intended to provide a return to the creditors where possible, it must also be remembered that the bankruptcy legislation is intended to provide the individual with an opportunity to start afresh and remain solvent in the future, so his/her expenditure should not be cut to a level where he/she will have difficulty funding his/her reasonable domestic needs.
If your income or expenses change during the three years, the IPA can be reviewed. So if you lose your job or go on maternity leave, your rent goes up or you get extra expenses after having a baby, these will all be taken into account. Equally, if your income increases or you get a bonus, your IPA will go up. An IPA has to be started before you are discharged – if one isn’t, then you will not have to pay one even if your income increases significantly after your discharge.
Your partner (or spouse – being married is irrelevant) doesn’t have to contribute money to your IPA, but they do have to make reasonable contributions to household costs, which will reduce the expenses that you have to pay.
The OR can’t generally have any effect on what you earn – if you want to walk out of your well-paid job and be a student for three years that is your choice. (The only exception here is that if you are able to draw your pension, you can’t decide not to in order to reduce your IPA. This is a complicated area and if it affects your decision to go bankrupt, you should get advice on this.)
When will I be discharged?
You will receive an automatic discharge from bankruptcy after 12 months unless either you have a Bankruptcy Restriction Order (BRO) made against you or you have not co-operated with the OR.
The Insolvency Service says:
“If your conduct has been dishonest or you have been in some way to blame for your bankruptcy, a bankruptcy restrictions order may be made against you. This will mean you will continue to be subject to the restrictions of bankruptcy for a further 2-15 years.”
That may sound worrying – almost everyone feels that they have been in some way to blame for their bankruptcy, and many people may have exaggerated their income a bit when applying for credit cards. But if this is the first time that you have gone bankrupt, you are unlikely to get a BRO unless a lot of your debts come from gambling or you have ended up owing large tax debts from your business.
After you are discharged from bankruptcy, all the restrictions and obligations mentioned above will cease, except that any IPA will continue until three years have passed and if you have an IPA you still have to inform the OR of changes in your earnings.
For full details about discharge, read What happens when I am discharged from bankruptcy?
Your credit record
Bankruptcy stays on your credit record for six years. During this time you will find it hard to get credit, although you can start the process of repairing your credit record after you are discharged.
Bankruptcy – summary
Pros gets rid of your debts, you only have to make payments for 3 years and they can be decreased if your expenses go up or your income falls, certainty – this can’t ‘fail’ like other debt options can
Cons may affect your job, your house is at risk, will always have to be declared when you apply for a mortgage
Debt Camel says If you don’t own a house and your job will not be affected, this is a good option if you owe more debt than you can hope to repay in a reasonable timescale. Other people need to balance the pros and cons of this against the other possible debt options.
If you haven’t yet looked at them, this would be a good time to check out the Hard Choice pages: IVA vs bankruptcy, long DMP vs insolvency, and Selling the house.
The big questions people have about bankruptcy
Timing, fees, applying to go bankrupt
Answering your questions about bankruptcy
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Fred says
I’m seriously considering bankruptcy but I’m worried about a few specific things.
I don’t have any assets worth more than £500 except for my car (£1000 ish).
As a licensed firearms holder I own 6 guns, worth around £1K in total, but only £150-350 individually – would the OR look at these as a grouped asset worth about £1K or likely leave them alone as low value items?.
I worry about having to pay an IPA. If they do set one up, is it 3 years minimum?
My current credit card and loan payments are about £700 a month, give or take about £80 depending how close to the limits I am each month, and I have had to pay some cards with cash from other credit cards in the last 4 months. If I declare BR does this amount of my income suddenly become “surplus” that the OR will require me to pay some of it to an IPA?
My wife will probably also need to go for bankruptcy too as we have historical debts (some joint) that have fallen off our credit file, and we were paying through a DMP, but stopped and haven’t really been chased. I worry that if she goes for a DRO then our joint debts and historical debts will either push her over the DRO limit or if we don’t find everything (old debts) then she will still be liable for some after the DRO – is this something to worry about?
Thank you for the great site and articles – really helpful and the best I’ve found so far!
Sara (Debt Camel) says
I think you two need to talk to a debt adviser about the details of your and your wife’s situation. I suggest ou call National Debtline on 0808 808 4000.
I don’t know how the OR would treat your guns – it may depend on how easy they are to sell. If you sold them it would get the money for your bankruptcy fees?
You seem to have a lot of spare income – not all your current debt paymenst would be set as an IPA – some of them are not genuine disposable income but being paid by new credit.
Try to find the list of debts in your old DMP – how long ago was this? Unless you can show they are unenforceable (see https://debtcamel.co.uk/ask-cca-agreement-for-debt/) they should be isted on a DRO.
Farrokh says
Hi Sara,
Thanks again for all your help. I’m coming to the end of my bankruptcy and was wondering if I’d be able to open an ISA after my discharge?
Many thanks
Farrokh
Sara (Debt Camel) says
Yes you can.
This page covers what happens after you are discharged: https://debtcamel.co.uk/discharged-from-bankruptcy/
Farrokh Kouchekpour says
Thank you :)
Kate says
Hi Sara
My husband went bankrupt on the 10th April 2019 hes just had a tax free code applied to his wages we haven’t had any info from the OR as to what happens now or who we pay this excess money too or how the amount is worked out as his wage varies every week. We have contacted the OR but no response this was over 1 week ago he seams very laid back over this we dont want to get in trouble thanks Kate
Sara (Debt Camel) says
You won’t get into any trouble over this. If your husband has any feel for how much tax Is normally taxes off, you could try putting that aside for when the OR gets back to you.
Polly says
Hi Sara,
I have an appointment set up with CAB for next Friday but after seeing some of your wonderful advice thought I would be able to ask some questions before Friday so I have a little bit more information that may create new questions. I like to be as fully armed with as much knowledge as possible.
I am considering going bankrupt. I owe over £40k in unsecured debts, which stems back to when I had to leave the family rented home with my two children after a physical assault from my then partner and start again from scratch as he wouldn’t allow me to have anything except the couch. Debts consist of unsecured loans and credit cards only. Personal credit was also used to start our business as we were unable to get any business finance whatsoever.
TBC
Polly says
I am currently a sole trader in a partnership with my husband. We deal in the sale of what can be classed as livestock. I rent a house and my car is worth no more than £600. We run the business from home. I only have debt in my name – no joint debts whatsoever.
1. If i do decide to go bankrupt, I understand I can still continue to trade as a sole trader, but my concern is for the stock that we hold. Would it be wiser if i ceased being self employed and I severed the partnership to protect the OR taking that sort of interest in the business? I would be classed as unemployed/ stay at home mum received working tax and child benefit? If this is a wise move how soon from ceasing my self employment could I look at applying to become bankrupt?
Sara (Debt Camel) says
I am glad you have an appointment booked with CAB, but that is quite a specialist question. I suggest you talk to Business Debtline https://www.businessdebtline.org/. They give advice to people with small limited companies, partnerships and the self employed, about business and personal debt.
Polly says
Many thanks Sara, will get in touch with them.
Have a great evening :-)
Polly says
Apologies I had a couple more questions that are not business related –
Bank accounts. I have a joint current account with my husband in good standing. All my benefits go into this account, and our wage as well as all my direct debits. Would it be a good idea to open a basic bank account in my name to have my benefits paid into this and my utility DD’s go out of this one for minimal disruption? Before applying for bankruptcy.
Should I get my husbands name removed off the joint account to disassociate him from our only financial tie. His credit rating has improved drastically recently and I wouldn’t want to further hinder that progress.
Sara (Debt Camel) says
You need to get your name or his name taken off the joint account before you go bankrupt or it will harm his credit rating. As you will need a basic bank account it’s probably easier to remove your name and for you to open a new account.
James Webber says
Hi Sara.
I have just had my Bankruptcy application approved and I am awaiting the meeting with the OR.
On our I&E info that I submitted we have a negative disposable income, mainly due to my salary dropping massively over the past 2 years. This would likely mean no payments via IPA if I understand the current process.
Could you please help me to understand what would happen if in 6 months time my take home salary increased by £1000 per month? The I&E currently shows -£200 household disposable income.
I would not want to avoid any payments and would declare any raise in income immediately but I cannot find any guidance anywhere that would help me to understand how much of the salary increase I would have to surrender.
Thanks,
James
Sara (Debt Camel) says
I suggest you wait until the time and look at a new I&E then. I am sorry but a lot can change.your pension contributions may increase, you may lose benefits, if you have a partner, your income would be larger so you would be expected to pay more of the household costs etc.
But if there is a way of not getting a pay rise until you are discharges after a year, that would be best!
Peter says
I am 68 years of age and following a collapse of my business, I am faced with debts of £28K. I believe bankruptcy is my best option as my sole income derives from a State Pension, Pension Credit & benefits. Can I be sure that I will not be required to make an IPA, as I was led to believe that Pension Credit merely ‘topped up’ my State Pension to the minimum income I needed to ‘live off’, yet I have been advised that I might be required to make an IPA over 3 years? Your advice would be greatly appreciated. Many thanks, Sara, and thanks for the DebtCamel website … it really has been so helpful. Many thanks, Peter
Sara (Debt Camel) says
“yet I have been advised that I might be required to make an IPA over 3 years? ” can I ask who said this, and did they think that bankruptcy was a suitable option for you?
steven foster says
I have been bankrupt now since 12th february, suddenly out of the blue they wnat to do another income expenditure form, is this normal, i told them next year 3 months after im discharged from bankruptcy im ginf to take some of my pension when i reach 55, i now have a feeling they are now trying to set up an ipa so that they can claim that pension if i cash it
Sara (Debt Camel) says
Why did you tell them what you were going to do next year, did they ask?
It’s not normal to be asked to do another form unless there is a reason why something may have changed. But if they want you to do another I&E form, then that’s what you need to do. If you need a hand with this, talk to National Debtline or post on here: https://forums.moneysavingexpert.com/forumdisplay.php?f=136
Steven Foster says
I told them because I was trying to be honest, and I needed a new phone so I was basically asking if it’s OK to upgrade my phone too, this was after they hijacked my 2 life insurance policies and I had to buy them back of them, I’ve done a bit of overtime this year so far I’m wondering how would they know all this stuff lol
Sara (Debt Camel) says
from HMRC… it may not be a good idea to be doing overtime if they are going to set an IPA!
You are also supposed to inform them if your income increases.
Steven foster says
I told them about my payrise and my bonus and they wasn’t interested in it, guess I best do no more then
Diana says
My husband (both retired pensioners (68 & 65) and I presently have an IVA which is failing and we are now considering bankruptcy because we can not afford £420 a month and we do not own a property.
We both receive government pensions and my husband receives full disability benefits.
The IVA considers his benefits and our government pensions as income and from some of the discussions on here, I understood that in bankruptcy the OR discounts these as income. I have just phoned and asked the OR’s office and they said government pensions count as income so I now really confused, can you please clarify?
Sara (Debt Camel) says
Hi Diana,
sorry to hear your IVA isn’t working out. How long ago did it start? How large are each of your debts in it?
when you say government pensions, do you mean the state pension and possibly pension credit? Or do you mean things like civil service or NHS pensions?
Diana says
Hi Sarah,
It started nearly a year ago via Stepchange and its about 60K.
To clarify I am referring to our state pensions.
Sara (Debt Camel) says
If your only income is state pensions and disability benefits, I’m not surprised you find it hard to afford £420 a month to an IVA! They do count as “income” in bankruptcy but you are allowed larger than normal expenses because of the disability benefits so the net result is that you will have no “spare income” and shouldn’t have to make any monthly payments.
You can discuss this with StepChange, or would you prefer to talk to someone else about it before talking to Stepchange?
Diana says
We do also have private pensions of approx £1400 per month Sarah which is counted as income. The IVA was £320 a month but we have just completed a new expenditure because I now receive a state pension albeit at £380 a month. It probably is worth talking to someone else Sarah rather than Stepchange. Are the disability state benefits really counted as income though in bankruptcy?
Sara (Debt Camel) says
Disability benefits are counted as income BUT you can include a line in your expenses that is the same value as the disability benefits.
Your state pension is also counted as income – but if you didn’t have the private pension, then that wouldn’t be enough income for you to have to make any monthly payments.
I think it might be a good idea for you two to talk to someone else about your options. You could phone National debtline on 0808 808 4000 and say you are struggling to afford the IVA and you would like them to say if you would have to make monthly payments – and how large – if your IVA failed and you went bankrupt.