An outline of what bankruptcy is and how it can affect your business, income, assets and bank account
If you don't have the money to pay back your debts or have so little that it will take you years, bankruptcy might be one of the options available to you.
Bankruptcy is a serious matter and should only be used as a last resort. You do not have to become bankrupt just because you are in debt.
This guide explains the bankruptcy process and how it affects your business, home, income and bank account. It provides information to help you decide if bankruptcy is the right decision for you.
What is bankruptcy?
Bankruptcy is one way of dealing with debts you cannot pay.
If you are declared bankrupt:
- the majority of your debts will be cancelled (up to the date of bankruptcy)
- your assets may be shared among your creditors
- you will have certain restrictions placed on you
- your name will be added to a bankruptcy register and published in the newspaper
- your bankruptcy will usually last 12 months
Anyone can become bankrupt including:
- individuals trading as sole traders
- individual members of a partnership
Only individuals can become bankrupt. There are different procedures for limited liability partnerships and companies.
If you are facing bankruptcy you should seek advice from a reputable source, including:
- Advice NI Business Debt Service
- a solicitor
- an accountant or financial advisor
- an insolvency practitioner
You should be wary of unsolicited approaches through the post or by telephone.
For more information, see get advice about bankruptcy.
How to declare bankruptcy in Northern Ireland and downloadable bankruptcy forms from the Insolvency Service
In Northern Ireland you can only be declared bankrupt by the High Court in Belfast.
After you have presented the High Court with a bankruptcy petition, and the Court decides that bankruptcy is appropriate, you will be declared bankrupt using a bankruptcy order.
The bankruptcy petition is usually presented either by:
- yourself (as a debtor's petition); or
- a creditor who is owed an unsecured debt of at least £5,000 (as a creditor's petition)
A bankruptcy order can still be made even if you refuse to acknowledge it. You should therefore co-operate fully once the bankruptcy proceedings have begun.
You do not have to be present at the court when your bankruptcy order is made.
If you live or have lived in Northern Ireland over the past 3 years, a bankruptcy order can be issued against you.
Once the bankruptcy order has been made a bankruptcy notice will be placed in the Belfast Gazette (an official publication) and in the Belfast Telegraph.
Written notice will also be given to a number of other organisations.
The bankruptcy process
Duties of a bankrupt individual and an overview of restrictions that are placed on a person who is declared bankrupt
When a bankruptcy order has been made against you the Official Receiver for Northern Ireland will be appointed to deal with your bankruptcy. The Official Receiver is a civil servant in the Department for the Economy (DfE) and is an officer of the Court. They will also act as trustee of your estate unless an insolvency practitioner has been appointed.
The Official Receiver will look into your financial affairs before and during your bankruptcy. Details may be reported to the Court and to your creditors. They are also required to report any dishonest or criminal behaviour.
You must comply with any request made by the trustee which may include:
- attending an interview
- completion of a questionnaire
- providing a full list of your assets and details of what you owe and to whom
- handing over your assets along with all your books, records, bank statements etc
- give details of assets and/or any increases in income
Some restrictions will also be placed on you. You must not:
- use bank accounts, debit or credit cards connected to your bankruptcy
- obtain credit of £500 or more without first disclosing that you are bankrupt
- make payments directly to your creditors
For more information see bankruptcy restrictions.
You may also have to go to Court and explain why you are in debt. If you do not co-operate, you could be arrested.
Payments to creditors during bankruptcy
During bankruptcy there is a non-payment rule to creditors, with a few exceptions including student loans.
If you are made bankrupt, you must not make payments directly to creditors.
Creditors to whom you owe money when you are made bankrupt should make a claim to the trustee of your bankruptcy estate. The trustee is either the Official Receiver or an insolvency practitioner.
Creditors should not ask you directly for payment. If you receive any requests for payment you should pass them immediately to your trustee to deal with and tell the creditor that you are bankrupt.
Exceptions to non-payment rule
There are some exceptions to the non-payment rule. The main ones are payments to:
- secured creditors, such as mortgage creditors
- non-provable debts, such as Court fines or child support
- benefit overpayments
- student loans
Debts incurred after bankruptcy
Any debts you incur after you have been made bankrupt must be paid. You must also pay any continuing commitments such as rent to a landlord if you rent your home.
How bankruptcy affects your business
Bankruptcy can affect your business, including taxes, registrations and employees
If you are self-employed when you are made bankrupt your business may be closed down and your employees dismissed.
If you are a director in a company, you cannot continue to act in this capacity without permission from the High Court and you will need to resign your position. Find further information on how to tell Companies House about changes to your limited company.
Any business assets will be claimed by the trustee unless they are exempt - see how bankruptcy affects your assets and bank account.
Employees of a bankrupt
Your employees may be able to make a claim to the National Insurance Fund for any of the following payments:
- outstanding wages
- holiday pay
- payment in lieu of notice
- redundancy payments
Beginning trading again
There is nothing to prevent a bankrupt from being self-employed.
You can start trading again but there are a number of restrictions you must comply with - see bankruptcy restrictions.
You must give the trustee all your accounting records. You will also be responsible for submitting any tax and VAT returns.
Registrations and licences
Any registration, licence or permission you hold in connection with your business may be affected by your bankruptcy. You should:
- notify the person or organisation who issued the registration or authority
- inform the trustee of any registration or authority you hold
If any of these items have a value it may belong to the trustee.
How bankruptcy affects your home
If you are a home owner, bankruptcy can affect your home and it is a possibility that your home will have to be sold
If you own your home any interest you have in it may have to be sold to pay your debts. The sale may be put off for 12 months after your bankruptcy.
Purchasing your interest
Your spouse, partner, a relative or friend may be able to buy your interest in your home from the trustee. This would prevent the property being sold.
Increase in property value
The benefit of any increase in value of your home will go to the trustee to pay your debts, even if it is sold after you have been discharged from bankruptcy.
Until your interest in the home is sold, or the trustee obtains a charging order over it, that interest will continue to belong to the trustee for a certain period, usually 3 years. This includes any increase in its value.
If the property cannot be sold
If the trustee cannot, for the time being, sell your home, they may obtain a charging order on your interest if it's worth more than £1,000.
If a charging order is obtained, your interest in the property will be returned to you, but the legal charge over your interest will remain.
Your home may be returned to you
After 3 years your home may be returned to you if your trustee has not:
- sold or obtained a charge over your interest in the property
- applied for an order of possession or obtained a charging order
- come to any arrangement with you about your interest in your home
See further information on how bankruptcy can affect your home from the Department for the Economy (DfE).
How bankruptcy affects your income
You may have to make payments towards your bankruptcy debts from your income.
How much you will pay depends upon what you can afford after reasonable domestic needs have been taken into account. This amount will be based on allowable outgoings and expenses determined by the Insolvency Service.
Payments from your income can either be:
- ordered by the Court using an Income Payment Order (IPO)
- made voluntarily through an Income Payment Agreement (IPA)
There are no fixed guidelines on IPAs or IPOs.
Income Payment Order (IPO)
Your trustee may apply to Court for an IPO which requires you to make contributions towards your bankruptcy debts. An IPO will not be made if it would leave you without enough money to live on.
An IPO can:
- be changed if income increases or decreases
- last for up to 3 years and continue after your bankruptcy has ended
Income Payment Agreement (IPA)
An IPA is a written agreement between you and your trustee to pay a certain amount towards your bankruptcy debts. The agreement last for a certain period and cannot be longer than 3 years.
How bankruptcy affects your assets and bank account
If you are made bankrupt a trustee will take control of all your assets.
You must disclose the following items to the trustee:
- tools, vehicles and other equipment you need in your employment or business
- clothing, household equipment and other basic items your family need (based on allowable outgoings/expenses determined by the Insolvency Service)
The trustee may let you keep these items unless they can be replaced with a suitable alternative.
Disposal of assets
The trustee will take control of all your other assets. They will dispose of them and use the money to pay your creditors. Some of the money raised may be used to pay the insolvency practitioner's fee if one has been appointed.
The trustee may apply to the High Court for an order restoring property to them if you disposed of it in a way that was unfair to your creditors. For example, if you transferred property to a relative for less than it was worth.
Any property you obtain while you are bankrupt may also be claimed by the trustee.
You must give the trustee your bank cards, cheque books and credit cards. Your accounts will be frozen but the trustee may release:
- any money you need urgently to live on - for example, to buy food
- your spouse or partner's share of any money in a joint account
After the bankruptcy order has been made you may open a new bank account. You should tell the bank that you are bankrupt.
The trustee may claim any interest you have in a life assurance policy. The trustee may be entitled to sell or surrender the policy and collect any proceeds on behalf of your creditors.
If the policy is held in joint names you should contact the trustee to discuss how the policy should be dealt with.
If you are made bankrupt you will have certain bankruptcy restrictions placed on you.
During your bankruptcy it is a criminal offence to:
- obtain credit of £500 or more without disclosing your bankruptcy
- act as a company director
- create, manage or promote a limited company without Court permission
- work as an insolvency practitioner
Additional bankruptcy restrictions
There are some additional restrictions during your bankruptcy including, that you:
- may not hold certain public offices
- may not act as a trustee of a charity or pension fund
If you break any of these restrictions you may be prosecuted and/or the date that your bankruptcy ends may be delayed.
How long does bankruptcy last?
If you comply with your bankruptcy terms, you will be automatically freed from bankruptcy (known as discharged) after a maximum of 12 months from the date of your bankruptcy order.
All restrictions in connection with your bankruptcy will be removed. However, you have a duty to continue to assist your trustee if required.
Proof of discharge
Discharge is usually automatic and you won't be sent a letter.
To get proof of discharge you can:
- ask the trustee for a confirmation letter
- ask the OR for a confirmation letter
- ask the Court for a Certificate of Discharge (fee applies)
Ending bankruptcy early
The Court may cancel your bankruptcy order and discharge you at any time if:
- all debts, fees and expenses relating to your bankruptcy have been paid in full
- the High Court decides the bankruptcy order should not have been made
Arrest of discharge
If you have not carried out your duties as a bankrupt the Official Receiver may apply to the High Court for your discharge to be postponed.
If the High Court agrees, your bankruptcy will only end when the suspension has been lifted.
Your credit rating
Credit rating agencies will not be notified of your discharge. You should send them a copy of an official document detailing your discharge.
Debts after bankruptcy
Bankruptcy deals with your debts on the date when the bankruptcy order is made. If you incur new debts this could result in:
- a further bankruptcy order
- prosecution if, when you incurred the debts, you did not disclose that you were bankrupt