I thought it would be useful to have a post which sums up a lot of the information about bankruptcy and answers people's frequent questions. Warning - long post! (This is an updated version of my previous post. It is 95% the same - the main changes are - DROs, higher fees, and bankruptcy notices in newspapers now rare.)

INTRODUCTION

Bankruptcy is a legal process that writes off almost all of your debts.

Bankruptcy proceedings are started by someone presenting a bankruptcy petition in the relevant court. This someone can either be you, the debtor, or one of your creditors. As the implications for you are much the same, I am going to assume here that you are choosing to make yourself bankrupt. If one of your creditors is threatening to make you bankrupt, you should be aware that they may well be bluffing to try to get you to pay them more money, but equally it would be sensible to read this post and see what is involved.

Nb The costs of bankruptcy are high. If your assets are worth more than your debts, you should do everything you can to avoid being made bankrupt.

If you owe less than £15,000 in total, then you should look into whether an a Debt Relief Order would be suitable for you. This is sometime described as 'bankruptcy-lite' - it is intended for people with smaller debts, few assets and little or no spare income each month. The procedures are simpler and the fees are a lot less. This leaflet explains DROs in more detail: http://www.insolvency.gov.uk/pdfs/guidanceleafletspdf/drogui....

When you have gone bankrupt, an Official Receiver is appointed who looks at your case and makes various decisions. The OR will decide which (if any) of your assets will need to be sold. He will also make an Income Payments Agreement if, after looking at your income and expenditure on essentials, you have a sufficient surplus each month. This IPA will last for three years.

You will normally be discharged from bankruptcy after a year. After you are discharged there are no further restriction on your actions, but you are likely to find it harder and more expensive to get credit.

It is comparatively easy to give a broad brush summary of what bankruptcy is and its likely implications, but there are a million complicating factors. I don't know which (if any!) of them will apply to you. If I list all the complications, not only would this post be more than twice as long but it still wouldn't help you much because you would only know what MIGHT happen not what WILL happen or is VERY LIKELY to happen. The bankruptcy rules are written to enable them cover everyone, so although the large majority of people going bankrupt have just been foolish and/or unlucky, the rules also have to cover people who have tried to deliberately bend the system.

Here is an extreme example. Mr X had a very well paid job but had run up large credit card bills. He knew he was going to be made redundant in a couple of months, so he took out a large loan to buy his girlfriend a Porsche for her birthday. When he got his handsome redundancy payment, he put it all into his pension fund. Then he went bankrupt. Now if I were to write that the Official Receiver will not be able to sell stuff that belongs to other members of your family and will not touch your pension fund, Mr X might read this and feel very happy, which would be misleading because the OR will sell the sports car and get the money out of the pension fund. But if I were to write that the OR will want to know about the details of your gifts to other people and will look at your pension fund, you might start worrying that he is going to sell your son's Playstation and raid your employer's pension fund to which you have been contributing for the last 10 years. And that would be equally misleading, as the OR will have no interest in either of these.

NB This post only covers the English & Welsh legal system – different processes apply in Scotland and Northern Ireland

There are two groups of people who may be considering bankruptcy but who should get professional advice on its implications of bankruptcy:
i. People with significant unusual assets, including shares in unlisted companies, rights to a share of a trust fund, unvested stock options, being a member of a partnership.
ii. People whose assets or debts are in dispute eg because of divorce. You need to discuss the possibility of bankruptcy with your solicitor. You should not just assume that your ex can have the house and car because you will be going bankrupt.

THE BIG QUESTIONS

Will it affect my employment?
------------------------------
There are a very small number of jobs which you cannot do as a bankrupt. You cannot be an MP. You cannot be a company director. There are certain professions – solicitors, accountants, estate agents, financial advisers – where you may be prohibited by your professional body from practising whilst you are bankrupt, although it may be possible to find a similar role for which you do not technically need to have the relevant professional qualification.

If you are in the police or have a job where you need a security check or any other job where it is a condition of your employment that you inform your employer if you go bankrupt (this includes some jobs with banks), you might assume this means that you will lose your job. However, the important thing for this sort of job is normally that they don't like employing people with large financial problems as they are potentially more likely to consider fraud and are more prone to being blackmailed. By going bankrupt you are getting rid of your debts and by telling your HR department you are eliminating the chance of blackmail. In these jobs it would be sensible for you to have a discussion with your HR department in confidence about whether they would terminate your contract if you go bankrupt. It is possible that you will not lose your job.

Lots of other people worry unnecessarily that they will not be able to carry with their current jobs. A teacher might think - parents might not like their children being taught by a bankrupt, so I'll lose my job. But bankruptcy is not some awful moral failing, nor is it contagious. Bankrupts are not nasty people that can't be trusted. Unless you work in one of the specific areas mentioned above it is extremely unlikely that you will have any employment problems. If you are still unsure, ask yourself if you have ever been asked if you are bankrupt when applying for a job, if the answer is no, then your employer probably doesn't care.

People also tend to worry about their employer finding out about their bankruptcy because they want to keep the matter private. When someone goes bankrupt, their employer is not informed. It may be possible for an employer to guess what is happening, because your tax code will be changed to a nil code. But in practice unless you work for an extremely small firm, this is not likely to be noticed: people's tax codes change all the time and processing them is just a tedious job for the relevant clerk, not an interesting occupation.

You are allowed to be self employed as a bankrupt, but your existing business will be closed down and you will have to start to trade again.

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 who has asked the court to suspend your discharge.
The Insolvency Service website states that “a bankruptcy restrictions order may be made against you if your conduct has been dishonest or you have been in some way to blame for your bankruptcy, and this will mean you will continue to be subject to the restrictions of bankruptcy for a further 2-15 years”. Now that sounds really worrying – almost everyone going bankrupt will feel 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 in practice, provided that this is the first time that you have gone bankrupt, you are extremely unlikely to get a BRO.

Some people may be discharged earlier than 12 months, if the Official Receiver is satisfied that there are no further investigations required. This is commonly happening for people who do not have equity in a house to resolve and who are not making monthly payments to the OR (see below).

Will I have to pay anything towards my debts?
----------------------------------------------
If, after looking at your income and expenditure, you have a sufficient excess of disposable income, you will be have to make monthly payments under an Income Payments Order. This is an amount which you will have to pay each month for three years i.e. you will carry on making these payments after you are discharged.

The Insolvency Service states that there are no fixed guidelines for calculating an IPO. However, it is extremely likely in practice that you will have to pay between 50% and 70% of your excess disposable income to an IPO. If the IPO would be for less than £50, it will not be made. This will normally happen if your only income is from benefits.

Because the OR only takes a proportion of your income after taking into account your essential expenditure, many people find that they are left with more money each month after they go bankrupt than before when they were struggling with their debts or on a debt management plan. The monthly payments under an IVA are often more than an IPO would be.

If your Statement of Affairs changes during the three years , the IPO 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 IPO will go up. If no IPO has been made by the time you are discharged, then you will not have to pay one even if your income increases significantly after your discharge.

The ability to vary the IPO means that bankruptcy is significantly more flexible than an IVA. If your income is uncertain, either because it depends on overtime which cannot be guaranteed, or because you are always employed on short term contracts, or because you are self employed, the inflexibility of an IVA means that bankruptcy is often a more appealing alternative.

What will happen to my house?
------------------------------
If you rent your house, there may be a clause which allows your landlord to end the lease if you are made bankrupt. The OR will usually inform your landlord that you have been made bankrupt. If you live in council or housing association property, it is extremely unlikely that you will lose your home. If you are renting privately, your landlord is also highly likely to want to keep you as a tenant assuming you don't have rent arrears. After all, if you have managed to keep paying the rent despite your other debt, you probably won't have a problem going forward. Landlords want tenants who will pay, and it is a rare landlord who would prefer to get rid of a good tenant and have to look for a new one.

If you own your home and it is worth more than the amount owed on any mortgage plus secured loan, then there is equity in the property and the OR will sell it so that the equity can be used to pay your creditors. If you cannot arrange for a friend or your partner to buy your equity (see below) then you are going to lose your home. This is the largest disadvantage of bankruptcy compared to alternative ways of tackling your debts and if you fall into this category you should explore the alternatives of a DMP and an IVA in detail before deciding that bankruptcy is preferable. Even if you are resigned to losing your home, you may find that it is preferable to sell it yourself and opt for an IVA including an up-front lump sum from the sale of your house.

If your family are living with you, then you are usually given 12 months before any sale can take place, which will give you time to make other living arrangements. If you have children or a disability, having your house sold by the OR means that your local council will be obliged to re-house you when you are made homeless, but if you prefer to rent privately you will be allowed to save up a deposit for renting, reducing the amount you pay in an IPO. If the OR has not taken any action to sell your home within 3 years, it will revert to you, but this is highly unusual and you should discount it as one of the things that might happen when you are deciding whether to declare bankrupt.

You can avoid losing your home if it is possible to sell your equity to be to a relative or a friend who is happy for you to remain in your house, possibly paying them rent. If you own your home jointly, the sale of your equity can be to your co-owner, providing they are not also going bankrupt.

The sale price for your equity will depend on the value of your home. It can be reasonably argued to the OR that a lower value on the house should be acceptable because of the need to sell the property relatively quickly and because lower sales costs are incurred (no estate agents or solicitors). Think of all the problems with your property – all the things you hope a house buyer wouldn't notice! eg it needs a new roof, the boiler is 20 years old, your house is the only one in the neighbourhood without a large garden - these can all reduce the amount of money needed to purchase your equity.

You can also argue that your share of the equity is less than 50% if, say, your partner provided more than half of the deposit for the house, or if your partner has paid for large improvements such as installing central heating or building a conservatory.

If there is no equity in the property, because its value is lower than the loans on it, then a relative or friend to buy your interest in the property for as little as £1 from the OR (although there will be several hundred pounds worth of costs involved).

If your name is not on the deeds of your house so that you are not its legal owner, the OR may still decide that you have a beneficial interest in the property. There is therefore no point in trying to transfer your half of your house to your partner (or anyone else) before you go bankrupt to avoid losing it. If you have never owned any part of the property, the OR may still decide you have some beneficial interest in the property if you have contributed towards the deposit for the mortgage, if you have paid the mortgage or if you have paid for large improvements to the house.

The Insolvency Service leaflet ""What will happen to my home? gives a clear guide to what will happen to your house.

What other stuff will have to be sold?
---------------------------------------
You will lose all your financial assets (except your pension) even if they are very small, such as a small life assurance policy or £25 in premium bonds. Your pension is not at risk except under extremely unusual circumstances eg you have made extremely large contributions to it which seem to have been funded by debts; a normal company pension will not be touched.

If you have a car, you should expect to lose it unless it is essential that you have a car to get to work, for example if there is no public transport or if you have to travel between sites for your job. If you need a car, you will be allowed to keep yours if it is worth less than about £2000; if it worth more than this it will probably be sold and you will be given the money to purchase a cheaper car.

You have to declare your assets you need to declare to the OR on your bankruptcy petition (there is more about how to fill this out below). Broadly the OR is not interested in the tools of your trade, your personal possessions and household goods unless they are of unusual value. So for example, jewelery, antiques, motorbikes and timeshares are assets which have to be declared; lawn-mowers, power drills, ipods and TVs don't. No-one will visit your house and make inventories of stuff to be sold. Your partner's things and your children's toys are not at risk.

Your partner, another relative or friend can offer to buy any items which the OR does claim. It is better to leave this until after you have declared bankrupt and agree the price with the OR. If you sell the items before your bankruptcy, the OR may query as to whether the items were sold for the correct amount of money. If he decides that the items were sold for less than they were worth, he can reverse the transaction.

As a general rule, you should not give away or sell assets for less than they are worth before you go bankrupt. The OR can go back and overturn transactions up to 5 years in the past. You may already have done this without any intention to defraud the OR. If this is the case, you should list the sale/gift on the Statement of Affairs you have to complete when you go bankrupt. Selling or giving away the item is not in itself an offence, but concealing it from the OR would be a criminal offence.

Who is told that I have gone bankrupt?
---------------------------------------
The OR will inform your creditors and, usually, your landlord about your bankruptcy. A notice about your bankruptcy will be published in the London Gazette. Notices used to be printed in a local newspaper, but this is now at the discretion of the OR and is rare - it is more likely to happen if you have been self-employed so that people who may do business with you locally will be informed. These notices are small and you may have read the paper for years without noticing them! A list of bankrupt people is also published on the internet.

Will it get rid of all my debts?
---------------------------------
Bankruptcy will get rid of all debts with the following exceptions:
i. joint debts – these become the sole responsibility of the non-bankrupt debtor (unless of course both of you go bankrupt)
ii. secured debts - but see above for the details of what happens to your equity in your property.
iii. court fines – nb these are fines resulting from criminal proceedings such as a fine in lieu of a custodial sentence. Debts which have been taken to court for a CCJ are not court fines and most parking fines etc will be erased.
iv. maintenance arrears and any payments ordered by a family court
v. benefit and tax credit overpayments – in some circumstances these are can be recovered by the DWP from any future benefits you receive but sometime the recovery will cease when you are discharged. It depends on when you receive the formal notice of overpayment and on the specific benefit. For most people this won't be a deciding factor in whether or not to go bankrupt, if it is you should visit your local CAB to get advice. Tax debts, including Council Tax arrears will be erased by bankruptcy.
vi. student loans
vii. Hire Purchase agreements – these can be included in bankruptcy, where the company would repossess the item, but it is also possible to sometimes argue that the debt should be excluded from your bankruptcy. In this case you keep the item and carry on paying the monthly installments. This most often happens if you need a car to get to work.

THE PRACTICALITIES – WHAT HAPPENS WHEN

When should I go bankrupt?
---------------------------
The simple answer is that you should go bankrupt as soon as possible after you have decided that bankruptcy is the best solution for you. Not only is it best to get it over with, so that you can start your financial life again, but once you have realised that you are going to have to go bankrupt you should make sure you don't borrow any more money. There are a couple of exceptions to this last point but in general it would be regarded as fraudulent for you to carry on borrowing money which you know you can't repay.

Having said this, if you are in any doubt about the bankruptcy decision, do not rush into it. If you think everything might look different in a couple of years, for example when your children are at school and you can get a job, then you need a temporary solution to your debt problems such as a DMP, not bankruptcy. You can't change your mind about bankruptcy, so if you think another solution might work, give that a go first.

The other good reason for delaying is if you are just about to move into a different rented property. Although going bankrupt will not prevent you from renting somewhere if your move is imminent, then you may prefer to get it over with rather than possibly complicate it.

If both you and your partner intend to go bankrupt, you don't have to do it at the same time. So if it will take you a while to get the fees together then it might make sense for the person with the largest debts or the most annoying creditors to go bankrupt first. Even if you go bankrupt at the same time, you will have to complete separate petitions and have separate interviews with the OR.

There are two things which may delay your going bankrupt. First you may need to save up for the fees involved, see below. Second, you should also ensure that you have enough money in cash to be able to live on for a couple of weeks whilst your bank accounts are frozen. If you are paid monthly, you may prefer to time your bankruptcy petition so that it happens a few days after you get paid: this will let you withdraw cash for living expenses and also give time for you work to switch your next pay cheque into your new bank account.

What does it cost to go bankrupt?
----------------------------------
Everyone who goes bankrupt has to pay a deposit of £450 (the deposit goes up to this amount on April 6th 2010). Although this is called a deposit, you won't get this back as it is a deposit towards the costs of administering your bankruptcy. In addition, you will have to pay the court fee of £150 unless you are getting certain mean-tested benefits such as Income Support. If your partner is going bankrupt at the same time, then you need enough money for two lots of fees.

It may seem odd that when you have no money to pay your debtors you have to produce many hundreds of pounds to go bankrupt, but that's the way it is. When you have decided to go bankrupt, getting these fees should be your top priority (except for the real top priorities such as food, housing etc!). If you are currently making any payments to unsecured creditors, either the normal monthly minimums, or on a debt management plan or an IVA, you should stop making these and start saving that money towards your bankruptcy fees.

How do I go bankrupt?
----------------------
First you need to find out which court you need to go to. In London, this is the High Court in the Strand. Elsewhere, it is your nearest County Court, see this website: http://www.hmcourts-service.gov.uk/HMCSCourtFinder/. If you have moved recently, you should go to the court where you have spent the majority of the last 6 months

You should phone up the court to find out the local procedures. In some areas you can just turn up with your bankruptcy petition, in others you may have to make an appointment weeks or even a couple of months ahead. This will give you lots of time to fill out the paperwork and save up the money for the fees! Also check when you phone up that this is the right court for your address - it can be confusing in some areas.

Next you need to get hold of the forms. You will have to fill out a Debtor's Bankruptcy Petition (form 6.27) and a Statement of Affairs (Debtor's Petition) (form 6.28). You can get these forms from your local court or you can download them from the Insolvency service and print them or you can fill them in on line. You don't have to have all the information at once to use the online forms, you can save what you have done at any point and return later to fill in the rest or amend what you have done. If you complete the forms from a court, you will need to take 2 extra copies of them. If you complete the forms online, you will have to print out three copies of the forms – you can't file them online.

If you are unsure of what to put on a form, leave the box blank but take all the relevant info with you to the court. The clerk will help you with the forms, but will not be prepared to give any legal advice or advise you on whether bankruptcy is a good choice for you.. The Insolvency Service operates a help line for online petitions, telephone 0845 602 9848.

On the Statement of Affairs you have to list all your creditors. You should try to make this as accurate as possible, but if you later realise that you missed a debt off, just contact the OR and he will add it. If you don't know how much is owing, phone the creditor up and ask. If you can't remember when you got a credit card, put your best guess with a question mark after it. If you are in dispute about whether you owe a debt, list it and note the dispute. You are asked what each debt was for, which is easy if it was a consolidation loan or a loan for a car. If it was a credit card, then put something like “general household purchases”.

You also have to list all your bank accounts, credit cards (including those you have already listed as owing money to) building society accounts etc; you should include in this list any accounts you have which have a zero balance.

You are also asked to list other assets with a resale value. Most people find this the most difficult part of the forms. It says on the guidance notes to the form:

You will be able to keep the following items unless their individual value is more than the cost of a reasonable replacement:
- tools, books, vehicles and other items of equipment which you need to use personally in your employment, business or vocation; You must disclose all these items to the Official Receiver who will then decide whether you can keep them.
- clothing, bedding, furniture, household equipment and other basic items that you and your family need in the home. You do not need to list your clothing or household furniture unless they are of particular value.

The value that you put against any item should be its second hand value ie how much you think it could be sold for, not what it cost you to buy. Don't agonise about getting this accurate – the OR will get his agent to value anything that has to be sold anyway.

TVs, DVD players, fridges, microwaves etc are all normal household furniture and should not be listed unless they are unusually expensive (large plasma screen TV, vast American-style fridge etc). You do not need to list any property which belongs to your partner or your children.

It is a criminal offence to make false statements on the forms or to conceal assets from the OR. You may therefore want to err on the side of listing more things rather than less. If in doubt, ask yourself, do most people have one of these? And if the answer is yes, don't put it on the form unless you think the secondhand value is at least £100.

If you think that you have found a clever wheeze to conceal some assets from the OR, then think again… even if I haven't mentioned your situation here. Concealing assets is a criminal offense.

You are asked to give information about your income. You should give the average amounts over a sensible period of time; this would normally be a year, but if you have had a pay rise or large drop in business recently, then just use the more recent figures and insert a note about this. If your income is extremely erratic, you should insert the average amounts but also include a note saying what the minimum and maximum amounts have been recently.

In the section where you list your outgoings, be comprehensive! You should be listing anything that you are likely to spend money on over the next three years, so this should include haircuts, dentist visits, contact lenses, pet insurance and an amount for an emergency fund. The OR may cross some of these out as allowable expenses, but he isn't going to ask you why you haven't included something…

Whilst you are filling in the forms, you will probably have to dig up a lot of paperwork. It would be a good idea to get this neatly sorted, as you should take it with you to court and have it ready for your interview with the OR. You will need just about everything relating to your finances: bank statements, pay slips, insurance policies, credit card statements, loan documentation, hire purchase agreements, receipts for any major purchases etc. If you are self employed, you should have the last available set of accounts. Don't worry if you haven't got all of these, the OR will be used to it, but the better organised you are the easier the whole process is on your nerves.

Don't sign the forms. You will sign them in front of the clerk of the court.

What happens on the day?
-------------------------
You take the forms and the copies, the fee and the deposit to the relevant court, sign the forms and swear an affidavit that says that you have told the truth on the Statement of Affairs form. If you are going bankrupt at the High Court, this affidavit will cost you another £7, but not if you are at a county court.

Once you have sworn the affidavit, the court may either fix a time for the bankruptcy hearing, or hear your case straight away; if you have had to make an appointment in advance, your case will normally be heard straight away.

At the bankruptcy hearing, which will probably last about five minutes, the judge will decide either to reject your petition or to make a bankruptcy order. It is extremely unlikely that the court will reject your petition. It will not be rejected because you have made a few slips on the forms, and it certainly won't be rejected because the judge thinks you should go away and repay all your debts… It will be rejected if it appears to the judge that you are not insolvent, ie that you have enough money to settle your debts or if it seems that there is an obviously better solution to your debt problems such as an IVA. Nb The judge is not there to think up imaginative solutions to your debt problems. This cannot be relied on as a check that YOU have made the right decision, the vast majority of petitions are simply nodded through.

You may be asked by the judge if you have taken any advice as to whether you should go bankrupt – if you have discussed this with CAB, NationalDebtLine, CCCS, Payplan or an Insolvency Practitioner, mention it. If you have considered solutions such as an IVA and rejected them, say why. When the bankruptcy order is made, you will be given a bankruptcy reference number.

Your first action after leaving the court may be to have a stiff drink, but your next step should be to open a Basic Bank Account, as all the accounts which you currently have will be contacted by the OR and are likely to be frozen. Take with you all the identification would will need (passport + bank statement + utility bill in your name is ideal). As soon as this account is opened, you should get your pay and any benefits switched to paying in to it. A Basic Bank Account will not have an overdraft facility or a cheque book or a debit card, but it will let you pay monies in, set up Direct Debits and standing orders and have an ATM card. Some banks let you have an Electron card which is accepted by many places as a debit card.

The interview with OR
----------------------
The interview with the OR can occur straight after the bankruptcy order, which is why you should take all your paperwork to court with you, but it is usually can be a week or two later. It can be a telephone interview or 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.

You may be asked to complete a questionnaire in advance or to provide certain documents – you should in practice bring all your financial documentation, not just the items specified.

You will be asked questions about your Statement of Affairs form 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 even if you can't remember, or if you borrowed money on one credit card to pay the monthly payments on other debts - you know now that that is foolish, but it is very common and it will not result in a BRO unless you have done it on an enormous scale for years.

You must co-operate with the OR and should not attempt 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 wont get angry or criticise. Equally 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 BRO 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, but you should carry on paying the mortgage and any secured loans. You should also carry on making payments towards any debts which will not be extinguished by your bankruptcy.

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 IPO, see above. You must inform the OR of any assets and increases in income that you get whilst you are bankrupt. This will include 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 due for all tax years up to and including the tax year in which you are made bankrupt will be due from the OR. So if you pay tax under PAYE, you should ask your tax office to put you onto a nil tax 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 in the IPO. If you are at all unsure of what to do, ask the OR to explain.

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 and holiday pay, payment in lieu of notice, and redundancy. Any business assets will become the property of the OR claimed by the trustee unless they are exempt (eg tools that you will need to continue in business) and you will have to give the Official Receiver all your accounting records.

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 as you should not continue to use your pre-bankruptcy VAT registration number.

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.

Life after you are discharged
------------------------------
After you are discharged, all the restrictions and obligation mentioned above will cease to apply, except that any IPO will continue until three years has passed. You can become a Company Director. You can take out credit without informing your creditor (unless you are asked if you have ever been bankrupt).

Bankruptcy will remain on your credit record for a period of six years. During this period you are likely to find it much harder and more expensive to obtain credit. This also applies to mortgages, where you will have to declare that you have been bankrupt even after the 6 year period has finished. Your mortgage is likely as a result to have a higher interest rate than a non-bankrupt borrowing the same amount on the same property.

But you shouldn't let this fact weigh too heavily in your decision whether to go bankrupt. You need to look at how your overall financial situation will compare if you go bankrupt compared to your best alternative. If your best alternative is an IVA or a DMP, this will also wreck your credit rating, and both of these would take longer to finish than the three years you would be paying an IPO for. So if your DMP takes 6 years, during this time you will not be able to save anything for a deposit. If you went bankrupt, at the end of 6 years you could have saved up a decent deposit, which would reduce the amount you would pay on a mortgage. Finally, you should be able to remortgage at a better rate after the first couple of years

After you are discharged, some banks will let you upgrade your Basic Bank Account to a standard current account with a debit card. Frustratingly, other banks will say they will let you upgrade in the future but this time never seems to arrive, so you may find it necessary to change banks again.

Many people say after they are discharged that they will never again take out any credit except for a mortgage. But if you want to get a mortgage at a reasonable rate, you will need a good credit record, and one of the best ways to improve that is to have a credit card and pay the full amount off every month, so even if you can only get a card with a tiny limit and an exorbitant interest rate, you should take it.

BUT I DON'T WANT TO GO BANKRUPT

Of course you don't. Nobody likes going bankrupt. But most people find the process much easier than they expected: the procedures aren't as bad as they feared, the relief from creditors is instant and living on a restricted income because of monthly IPO payments isn't as difficult as they imagined. It's drawing a line in the sand and letting you and your family start all over again.

Bankruptcy isn't the end of the world. It's the most sensible choice for some people with large debts, few assets and little prospect of significant improvement. The more assets you have and the more complicated your situation, the more you need further advice.

So ask yourself if you have any realistic alternative. How long will it take to pay your debts off in a DMP? If it takes more than about seven years, then this really isn't sensible, especially if you have children – you would be wasting a large part of their childhood in a never-ending struggle with debt. If you have assets to protect (probably equity in your house), you should consider an IVA, but if your equity is low, income is unreliable, you only have an interest only mortgage and you will struggle if rates rise, or your partner could buy your share of the equity in your house, then bankruptcy may still be your best option.

I EXPECT YOU HAVE LOADS OF QUESTIONS

This Dealing With Debt board is a good place to ask them! But please don't reply to this message - instead post a New message, that means we can separate out your questions and the answers to them from other people's.

manzanilla