Depending on your circumstances, bankruptcy can be, not only the quickest, but also the most cost effective way to tackle the burden of debts you can’t repay.
As you can see a large portion of your outstanding debts written off in the space of just a year, bankruptcy is sometimes, financially speaking, not just a necessity but a positive step towards becoming debt free. However, the process of becoming legally bankrupt does entail certain costs.
The Official Receiver’s Fee
There are two court fees you need to pay when being declared bankrupt. The first of these fees is the Official Receiver Fee. Currently this fee stands at £525. This pays for the efforts of the Official Receiver who works for The Insolvency Service to oversee your bankruptcy, collect/protect your assets, act as your trustee where appropriate and organise your discharge. This fee has to be paid before you can become bankrupt.
The Court Fee
At £125 the court fee is considerably less. Furthermore, if you’re on certain benefits or living on low income you may be able to claim exemption form the fee, or at least a partial remission. To do this you’ll need to fill in an EX160 form and provide documented evidence of your financial situation, such as bank statements.
The Court’s and Tribunals Service have produced a pamphlet entitled ‘Court Fees – Do I Have to Pay Them’ that helps explain under exactly what circumstances you’ll be exempt. It also offers guidance on how to fill out the form properly.
Raising the Funds
Unless you can get a remission on the court fee, your bankruptcy costs will total £700. Naturally, most people looking at insolvency will not have such a sum at their immediate disposal.
Fortunately, there are a variety of ways in which you can go about raising the funds. As long as you can demonstrate that all the money is going towards the fee you can stop paying your creditors so as to get the money together (as long as they are featured in the bankruptcy).
Alternatively, you can borrow from family or friends who can then receive a reimbursement from the official receiver out of the administration fund later on (assuming it’s sufficient).
Depending on your profession, you may be able to get help from a worker’s union. If you’re in the armed forces or the police for example this could well be an option. You may also be able to get help from the Citizen’s Advice Bureau.
Though, as part of your bankruptcy, your assets will come under the control of the receiver, you’re able to sell assets so as to pay your fees.
You do not need help from a legal professional of any kind in order to declare yourself bankrupt as the process, including all the paper work, though fairly detailed and extensive, is straightforward. However, when you go to court you will need to swear that your ‘statement of affairs’ (a document in which you detail your financial situation) is true. This has to be done in front of a solicitor and will cost about £7.
Paying the Fees
Payment has to be provided either in cash, by postal order or by bank, building society, solicitor’s or charity cheque. Cheques should be made payable to HM Paymaster General. Courts will not accept personal cheques or credit card transactions.
It’s normal to be discharged after a year of bankruptcy however, you may go on paying off your debts for a longer time under the terms of an IPA (Income Payments Agreement) which can last for up to three years. (If you refuse to make payments as part of such an agreement you can be ordered to by a court as part on an Income Payments Order). Unless you can show that all of your income is needed for essentials, you should be prepared for these ongoing costs.