Who Pays For Bankruptcies

Who pays for bankruptcies

This page was last updated in July 2022. 

Who Pays For Bankruptcies in 2022

What does bankruptcy mean?

When a firm decides to file bankruptcy, it means that it has run out of money to pay its debts. This might happen for a variety of reasons, including poor management, market fluctuations, or bad luck.

The cost of filing bankruptcy can be high, but you can seek help with bankruptcy fees. For individuals filing personal bankruptcy, there are fee waivers or partial payment arrangements available if you’re on a low income. This means that you won’t have to pay the full bankruptcy filing fee and other related expenses. 

How much does it cost to declare bankrupt? 

The total cost of declaring bankruptcy is £1,700. This includes the £525 deposit, £150 for the official receiver fees, and £1,025 for the court’s fees.

How much does it cost to go bankrupt? 

You will need to pay a deposit of £525 when you file for bankruptcy. This is to cover the cost of your bankruptcy proceedings.

You may also have to make direct payments toward your debts, depending on your income and outgoings. It is possible to have your fee waived under some conditions. 

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What Fees are Involved in Bankruptcy?

Bankruptcy can be a costly process. The following fees and payments are typically involved:

– An administration fee of £1,500

– A bankruptcy court fee of £280

– A deposit of £525 (this is refunded if the bankruptcy is successful)

– A contribution towards the costs of the Official Receiver (this is typically around £100 per month for 12 months)

In addition to these fees, there may also be other professional fees, such as solicitors’ and filing fees. These vary between bankruptcy cases depending on their complexity. 

An income payments agreement, or an income payments order, is an arrangement between you and your trustee to make regular payments toward your bankruptcy.

Who Actually Pays for Bankruptcies?

The UK government pays for most bankruptcies through the Insolvency Service. Taxpayers pay for this service. 

Once you file bankruptcy, you are added to the insolvency register. 

​​What is individual insolvency?

Individual insolvency means that you are unable to pay your debts. This could be due to job loss or an unexpected change in circumstances.

What is the role of the Insolvency Service?

This is an agency that processes insolvencies (when companies can’t pay their debts). 

You can also file for bankruptcy online through this service. 

You’ll need to create an online account and log in. Then, you’ll need to:

– Complete an online form disclosing relevant personal or financial information, your national insurance number, whether you are self-employed and so on.  

– Pay the £525 court filing fee 

What is the difference between bankruptcy and liquidation?

Bankruptcy is a process that allows a person or company to be declared insolvent. This means that they can’t pay their debts. Liquidation is when a company sells off its assets to repay its creditors.

What happens to the employees?

When a company goes bankrupt, its employees may lose their jobs. Sometimes, employees can be transferred to another company if it buys the assets of the bankrupt company.

What happens to the shareholders?

When a company goes bankrupt, its shares are worthless. This means that shareholders lose all the money they invested in the company.

How creditors are paid

How your creditors are paid money owed in bankruptcy depends on whether they’re unsecured or secured.

Secured creditors

A secured creditor is someone you owe money to and who has security over your assets. This could be a mortgage lender, for example.

Unsecured creditors

An unsecured creditor is someone you owe money to but who doesn’t have security over your assets. This could be a credit card company, for example.

Preferential creditors

Preferential creditors are unsecured creditors who have priority over other unsecured creditors when it comes to getting paid. This includes:

– Employees owed wages, holiday pay or redundancy pay

– Certain types of pensioners

– People owed money by the bankrupt person for personal injury or death

If there’s not enough money to pay all the preferential creditors in full, they’ll share the money equally between them.

help with bankruptcies fees

Ordinary unsecured creditors

Ordinary unsecured creditors are unsecured creditors who don’t have preferential status. This includes most credit card companies and utility companies.

If there’s not enough money to pay all the ordinary unsecured creditors in full, they’ll share the money equally between them.

You may be asked to make a contribution to your bankruptcy if:

If you have any money left over after paying your creditors, you may be asked to make a contribution to your bankruptcy. This is known as a “contribution order”.

The amount you pay depends on how much money you will have leftover and how much your creditors are owed.

"When a firm decides to file bankruptcy, it means that it has run out of money to pay its debts. This might happen for a variety of reasons, including poor management, market fluctuations, or bad luck."

You’ll only have to make a contribution if:

– You have more than £50 left over after paying your creditors

– Your creditors are owed more than £750

– You have surplus income 

– You’re able to pay the contribution within three years

If you don’t agree with the contribution order, you can appeal against it.

What happens if you don’t pay your debts?

If you don’t pay your bankruptcy debts, your creditors may take legal action against you. This could lead to:

– Your wages being garnished (deducted from your salary by your employer)

– Your bank accounts being frozen

– All your assets being seized and sold

– You being made bankrupt

You should get debt advice from an insolvency practitioner if you’re having trouble paying your debts. 

how much does it cost to declare bankrupt

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Credit Counseling Services

Most credit counselling services can help you work out a debt repayment plan or develop a budget.

You can receive credit counselling through the National Foundation for Credit Counseling.

If you can’t afford credit counselling, there are other options. These options include :

Debt management plans

Debt consolidation loans

– Debt settlement

If you’re thinking about going bankrupt, you should get free advice from an insolvency practitioner.

Why Does the Government Pay for Bankruptcies?

By paying for bankruptcies, the government ensures that creditors are repaid and those directors are held accountable for their actions. This helps to create a stable business environment and protects taxpayers’ money.

How much does the government pay for each bankruptcy?

The government pays for most bankruptcies, but there are some exceptions. For example, the government does not pay for bankruptcies that are caused by criminal activity.

The average bankruptcy cost is £15,000. However, the cost can vary depending on the size and complexity of the case.

What happens if the government doesn’t pay for bankruptcy?

If the government doesn’t pay for bankruptcy, the company’s creditors may not be repaid. This could create a stable business environment and protect taxpayers’ money.

How long does bankruptcy last?

The bankruptcy period mostly lasts for 12 months. This is the period of time during which you are not allowed to obtain a credit of more than £500 without telling the lender that you are bankrupt.

After 12 months, your bankruptcy will be discharged, your name will be removed from the Register of Insolvent Companies and any outstanding debts will be written off. 

how much does it cost to go bankrupt

There are some alternative debt solutions to bankruptcy. These include:

A Debt Relief Order (DRO)

Debt relief orders are an alternative to bankruptcy for people with low levels of debt and limited assets. A DRO can last for up to 12 months and may be an option if you owe less than £20,000, have few assets and have a low income.

A DRO can give you some breathing space from your creditors as it freezes all interest and charges on your debts. It does not make you bankrupt and you do not have to make any repayments during the 12-month period. 

At the end of the 12 months, your debts will be written off (although you may still have to pay some debts, such as student loans or court fines).

A DRO is a cheaper and simpler alternative to bankruptcy, but it can still have a significant impact on your credit rating.

An Individual Voluntary Arrangement (IVA)

An IVA is a formal agreement between you and your creditors to repay your debts over a period of time. An IVA can last for up to 60 months and may be an option if you owe more than £20,000 and have a regular or surplus income.

At the end of the 60 months, any remaining debt will be written off.

Debt Management

Another debt solution is debt management – an informal agreement between you and your creditors to repay your debts over a period of time. 

However, debt management can still give you some breathing space from your creditors as it freezes all interest and charges on your debts. It also means that you do not have to make any repayments during the agreed period.

At the end of the agreed period, any remaining debt will be written off.

Debt management is a cheaper and simpler alternative to bankruptcy, but it can still be a significant burden.

cost of filing bankruptcy

Debt Consolidation

Debt consolidation is when you take out a new loan to pay off your existing debts. This can give you one single monthly repayment, which may be lower than the total of your current repayments. However, it is important to remember that you will still owe the full amount of the loan, plus any interest and charges or other miscellaneous costs involved.

A Trust Deed

A trust deed is a formal agreement between you and your creditors to repay your debts over a period of time. A trust deed can last for up to 48 months and may be an option if you owe more than £5,000.

A trust deed means that you do not have to make any direct payments during the 48-month period.

At the end of the 48 months, any remaining debt will be written off.

A trust deed is a more expensive and complex alternative to bankruptcy, and it can still have a significant impact on your credit rating.

What is a bankruptcy petition?

This is a legal process that allows debtors to have their debt discharged. 

Can a bankruptcy petition be denied?

A petition may be denied for a number of reasons. If your bankruptcy petition is denied, you will still be liable for your debt and restrictions will continue to apply to you. 

It’s critical to get expert assistance and debt advice before filing your own bankruptcy petition. It can also be useful to consult a debt counsellor. 

The personal costs of bankruptcy

Bankruptcy proceedings can be a very expensive process, both in terms of the costs involved which you have to personally pay and the impact on your credit file.

The fees you have to pay include:

– The court filing fee

– The official receiver fee

– Credit counselling fee 

-Your bankruptcy trustee’s fee

These fees can add up to several thousand pounds, which you will need to find from your own resources. In some cases, it is possible to have your fee cost lowered.

bankruptcy cost

What Happens to My Home if I go Bankrupt?

If you own your home, it may be sold to repay your creditors. However, this is not always the case. The Official Receiver will assess your circumstances and may allow you to keep your home if it is your main residence and if the Official Receiver determines that you have a low level of debt.

If you have little or no equity in your home, the Official Receiver may allow you to keep your home. However, you will still be liable for your mortgage payments and any other secured debts. 

Or, if you have a beneficial interest in your home (beneficial interest is when you have the right to live in your home but do not own it outright), the Official Receiver may allow you to keep your home. 

Can I Keep My Car if I go Bankrupt?

If you own a car, it may be sold to repay your creditors. However, this is not always the case. The Official Receiver will assess your circumstances and may allow you to keep your car if it is essential for your job or if you have a low level of debt.

What Happens to My Personal belongings if I go Bankrupt?

Your personal belongings are not usually included in bankruptcy. This means that they cannot be sold to repay your creditors.

Which debts does bankruptcy cover?

Bankruptcy usually covers most types of debt, including:

– credit and store cards

– personal loans

– utility and household bills

– council tax

– rent arrears

– benefit overpayments

HMRC debts, such as income tax and VAT

Exceptions to payment rules

There are some exceptions to the payment rules set out above. For example, if a company is sold after it goes bankrupt, the proceeds from the sale may be used to pay off creditors. This is known as a “sale of the business and assets”.

How long does bankruptcy last?

Bankruptcy usually lasts for one year. After this, the bankrupt person is released from their debts. However, there are some debts that can’t be discharged, such as:

– Child maintenance arrears 

– Student loans

– Fines

– Some taxes

– Maintenance payments 

bankruptcy mean

What happens to your bank account?

Once you are served a bankruptcy order, your basic bank account will be frozen and you’ll no longer be able to use it. You’ll need to open a new account with a different bank.

You should tell your employer about your bankruptcy estate. This is because:

– Your wages may be garnished (deducted from your salary by your employer)

– You may not be able to get certain types of jobs if you don’t disclose your bankruptcy

Your employer will also be able to find out about your bankruptcy order if they carry out a credit check on you.

Pension Payments

If you’re a pensioner, you may be wondering what will happen to your pension if you go bankrupt. The good news is that most pensions are protected from bankruptcy. This means that your creditors can’t touch your pension.

However, there are some exceptions to this rule. If you have a “defined benefit” pension, your creditors may be able to claim some of the money. This is because defined benefit pensions are usually worth more than other types of pensions.

What happens to your benefits?

If you receive benefits, such as Jobseeker’s Allowance or Housing Benefit, you may be worried about what will happen if you go bankrupt.

Most benefits are protected from bankruptcy. This means that your creditors can’t touch your benefits.

However, there are some exceptions to this rule. If you receive a “passported benefit”, such as Disability Living Allowance, your creditors may be able to claim some of the money.

Missed payments

If you miss a payment to your trustee, you may be deemed to have committed an act of bankruptcy. This could lead to your bankruptcy being annulled and your assets being seized.

Discharge from bankruptcy

You will be discharged from bankruptcy after 12 months. This means that you are no longer bankrupt and your debts are written off.

You will need to complete a debtor education course before your bankruptcy discharge. Debtor education courses usually take about 4 to 6 hours to complete.

There are some bankruptcy restrictions on what you can do after you’re discharged, such as:

– You can’t get a credit of more than £500 without telling the lender that you’ve been bankrupt.

– You can’t act as a director of a company.

– You can’t take part in the management of a limited liability partnership.

Bankruptcy affects your credit significantly as credit reference agencies will keep a record of your bankruptcy order for 6 to 10 years. This will make it difficult to get new credit, such as a mortgage or car loan.

You can start rebuilding your credit by:

– Applying for a secured credit card

– Getting a co-signer on a loan

– Taking out small loans and repaying them on time

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Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – katy@helpandadvice.co.uk

Frequently Asked Questions

 

Why Does the Government Pay for Bankruptcies?

By paying for bankruptcies, the government ensures that creditors are repaid and those directors are held accountable for their actions. This helps to create a stable business environment and protects taxpayers’ money.

What happens if the government doesn’t pay for bankruptcy?

If the government doesn’t pay for bankruptcy, the company’s creditors may not be repaid. This could create a stable business environment and protect taxpayers’ money.

What is a bankruptcy petition?

This is a legal process that allows debtors to have their debt discharged. 

Can I Keep My Car if I go Bankrupt?

If you own a car, it may be sold to repay your creditors. However, this is not always the case. The Official Receiver will assess your circumstances and may allow you to keep your car if it is essential for your job or if you have a low level of debt.

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