Bankruptcy is a formal insolvency route for individuals with serious debts that they cannot afford to pay. It protects you from your creditors and allows you to start afresh but should only be considered as a last resort due to the serious implications it has. For example, the fact you have been declared bankrupt is advertised in the local press, your bank accounts and credit cards are closed, and for certain professions you run the risk of losing your job.

Once declared bankrupt, a Trustee is appointed to sell your valuable assets and distribute the proceeds to your creditors. This means your property, jewellery and any other possessions of significant value can be sold. However, once discharged from bankruptcy you are completely debt free, although the effects on your credit rating will last for up to 6 years.

When declared bankrupt, all of your assets automatically become the possession of the official Trustee, who has the authority to dispose of them without your consent. However, you are able to retain certain tools, books and motor vehicles that are considered essential for your employment. You can also keep clothing, bedding, furniture and household equipment needed to satisfy the basic domestic needs of yourself and your family.

The assets which the Trustee can take are the following:

¤	any interest you may have in property, even if it’s held in joint names with a spouse or partner
¤	any shares, bonds, endowments and savings policies
¤	any funds held in bank or building society accounts
¤	high value assets such as motor vehicles and jewellery
¤	lump sums from private and occupational pensions if they mature during the bankruptcy. The Trustee may also be entitled to subsequent pension payments for up to three years.

You can also face having to pay part of your monthly or weekly wage, either with your consent or through a court order. This order is based on you contributing a percentage of any surplus income, and will last for a maximum of three years from the date of bankruptcy.

If you acquire any asset during the term of your bankruptcy you have to advise your Trustee, who will usually disburse it for the benefit of your creditors. Typical assets include:

¤	inheritances, including property, cash, investments and any other asset of value
¤	a windfall from a win on the National Lottery, football pools or bingo
¤	money received after the date of bankruptcy but before the date of discharge from your bankruptcy.

If the value of your home is greater than the outstanding debts secured on it, the Trustee will look to realise your beneficial interest. This means:

¤	asking you or your family to raise the funds required
¤	asking you to sell your home by placing it on the market, or
¤	obtaining an order for its possession and sale.

If you live in rented accommodation the Trustee has no interest in the property. So long as you comply with the tenancy agreement you should be able to stay. However the Trustee may inform your landlord you are bankrupt.

Any pension payments received during your bankruptcy will be classed as income and may create a surplus to be paid into your estate. Depending on your specific circumstances, you may be able to continue to make payments to your personal pension, although it is unlikely.

Recent legislation allows for your automatic discharge from bankruptcy after 12 months, although this period can be shorter if the Official Receiver completes his enquiries early. The duration of the bankruptcy may also be altered in any of the following circumstances:

¤	the court annuls the bankruptcy order on the grounds that all debts have been paid in full
¤	the court annuls the bankruptcy on the grounds that the original order was inappropriate
¤	you enter into an IVA with your creditors
¤	the discharge from bankruptcy is suspended as a result of failure to co-operate with the Official Receiver or Trustee. Only after the breach causing the suspension has been rectified will the twelve month period continue.

Although free of bankruptcy once discharged, it’s important to note that details of it will remain on your credit file for six years.

Anyone who is struggling to pay their debts can go bankrupt, but it should only be considered as a severe last resort, when no meaningful alternative is available. In order to petition for you own bankruptcy there is a fee of £485 payable to the court, but the legal process can also be started by anyone you owe more than £750.

Creditors only use bankruptcy as a last resort, since it usually means they will receive significantly less money than actually owed. Creditors also incur considerable expenses if they petition for a bankruptcy, much more than you might think.

If you decide to petition for your own bankruptcy, you will need to contact the bankruptcy division of your local County Court or High Court. They will tell you how the bankruptcy process operates through their court, and will provide you with the relevant forms. These will need to be completed before your petition can be heard.

Ironically, if you wish to petition for your own bankruptcy you have to pay the appropriate fees involved. The court fee is currently £150, administration costs are £335 and, if you go to a High Court then a £7 fee is levied for the swearing of the statement of affairs. If you are in receipt of benefits however, you may have the £150 court fee paid on your behalf.

Bankruptcy Orders are advertised in the London Gazette and a newspaper in your local area. Details are also placed on a bankruptcy register maintained by the government. This is a public document and can be seen on the internet.

Anyone you have had a financial relationship with will also be told of your bankruptcy, including banks & building societies, mortgage and secured loan companies, hire purchase companies, your landlord, people you owe money to and pension and insurance companies.

If you don't have joint debts then your partner will not be directly affected by your bankruptcy. If you have joint debts however, which includes any mortgage, then you are both joint and severally liable, meaning your creditors will look to your partner to pay the full amount of any debt that was included in your bankruptcy.

Details of your bankruptcy will be held by the credit reference agencies, and because you reside together, this could have an adverse effect on your partner. They may also be affected by any action taken by the Trustee in respect of your interest in your home.

Although discharged after 12 months, the bankruptcy will remain on your credit file for 6 years. Lenders use your credit file to decide whether or not to lend you money, and these details will obviously affect their decision.

The following list highlights the restrictions applicable to bankrupts:

¤	if you apply for credit of £500 or more, you must inform the lender you are bankrupt
¤	you can't conduct business directly or indirectly in any name other than that in which you were made bankrupt
¤	you can't act as the director of a company or take part in its promotion, formation or management unless you get the court's permission to do so.

Most debts are included in bankruptcy but the following will remain collectable even after your discharge:

¤	Court fines
¤	Debts due to the Child Support Agency (CSA)
¤	Student loan debts
¤	State benefit overpayments
¤	Secured debts
¤	Awards for damages and fraud.

Unfortunately you will have to attend court if you petition for your own bankruptcy, but if one of your creditors presents the petition, you may be able to avoid it.

Depending on your personal circumstances there are several alternatives to bankruptcy, the main options being an IVA, Debt Consolidation, Remortgaging, or a Debt Management Plan. Each of these have their various merits, but for more information or a comparison between them, take a look at all our debt solutions.

When a bankruptcy order is granted, the court will contact the Official Receiver’s office and tell them that the order has been made. A representative of the Official Receiver’s staff will then ask you to attend an interview at their offices to discuss your financial circumstances. You will be requested to complete and return a questionnaire prior to this interview.

Once the Official Receiver has all the relevant information he will decide what assets, if any, will be taken from you. He will also assess your income and expenditure to determine whether or not to make an income payments order as well.