Voluntary bankruptcy

 

Voluntary bankruptcy is another term for a debtor’s petition for bankruptcy. This is where a debtor petitions the court stating that they cannot pay their debts.

A debtor’s petition is done under the Insolvency Act 1986 and should be accompanied by a statement of affairs, which should include details of the:

  • Debtors
  • Creditors
  • Debts
  • Liabilities
  • Assets

If you are thinking about petitioning for your own bankruptcy, there are far reaching legal effects it will have on your future and it is imperative you seek legal advice before choosing this avenue.

What is voluntary bankruptcy?

Although voluntary by name, voluntary bankruptcy usually occurs when it becomes apparent that if the debtor does not petition for bankruptcy, a creditor will.

The result of a debtor’s petition is that the debtor escapes the pressure of creditors and all responsibility for their financial affairs vests in the trustee in bankruptcy.

Petitioning to the court

If you decide that you wish to declare yourself bankrupt, you will need to petition a court. Although it is possible to do this without a solicitor, the application is very important and needs to be completed correctly. You risk losing your deposit, of £450, if your application is unsuccessful.

  • You can apply at your local county court where you live or in some circumstances where you work. Your solicitor can advise you on where exactly to apply
  • In addition to your deposit of £450, you may also be asked to pay a fee of £175 although this is dependent on your circumstances

In some situations the court may reduce this additional fee, and in some situations you may avoid paying it altogether. It is worth noting that you should ensure you have sufficient funds to get by, as once bankruptcy is declared by the court, your bank account will be frozen.

If your petition is successful the control of your financial affairs passes to an independent trustee known as the Official Receiver. The Official Receiver will deal with your creditors for the duration that the bankruptcy order is in force which is usually around 12 months.

During this time your creditors must drop any legal actions against you. At the end of this period, any outstanding debts are discharged.

It is worth noting that the Official Receiver is entitled to sell any assets you may own including your home. They may also close down your business and dismiss any staff you employ.

What happens next?

Apart from the freedom from stress that usually accompanies the period preceding bankruptcy, the debtor will also benefit from freedom from virtually all of their debts once discharged, even if they have not been settled.

When the debtor petitions for bankruptcy, the court may appoint an insolvency practitioner to investigate the possibility of entering into an Individual Voluntary Arrangement (IVA), rather than bankruptcy.

This can only happen in certain circumstances and a debtor will not be considered if:

  • They have entered into a voluntary arrangement with creditors in the previous five years
  • Have debts of more than £40,000 or less than £5,000

For further information on alternatives to voluntary bankruptcy, see our page on IVAs.

Are you unsure how to cope with your debts and need financial advice? Contact Law can put you in touch with a specialist bankruptcy or insolvency solicitor to help you put your finances in order as soon as possible. Please call us on 0800 1777 162 or complete the web-form above.

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