Access key links:

This site uses cookies to help make it more useful and reliable. Our cookies page explains what they are, which ones we use, and how you can manage or remove them.

Bankruptcy debts


 

What is a liability?
Your debts, also known as your liabilities, are all the money you owe to other people at the date of the bankruptcy order. The people who are owed the money are known as creditors.
When you are made bankrupt, your creditors cannot start, or carry on with, any legal proceedings against you to recover the money you owe. There are some exceptions to this.  In particular, a landlord has certain rights to seize your goods, after the date of the bankruptcy order, in respect of rent you owed before the date of the bankruptcy order. There are statutory rules governing how this can be done and limits imposed on what can be claimed.

What happens to my council tax arrears in a bankruptcy?
Certain amounts of council tax are classed as provable debts in bankruptcy. These are:

  • All arrears outstanding at the date of the bankruptcy.
  • The monthly instalment for the month in which you were made insolvent where, at the date of the bankruptcy order, the day on which that payment is due has passed and the payment has not been made.
  • Where you have failed to comply with a reminder notice. This would mean the whole amount of the council tax for the year is due and payable, so the whole sum is a provable debt in a bankruptcy.

 
NB Where there have been no unpaid reminder notices or instalments due there is no provable debt in a bankruptcy for Council Tax.  This means you must continue to pay your instalments as usual.

 

Will all my debts be included in my bankruptcy?
If you are made bankrupt, you must stop making payments directly to your creditors. Your creditors must make a claim to your trustee (that is, either the official receiver or an insolvency practitioner). They should not ask you directly for payment; if you receive any requests, you should pass them immediately to your trustee to deal with and tell the creditor that you are bankrupt. There are some very limited exceptions to this non-payment rule. These are:

  • secured creditors, such as creditors who have a mortgage or charge on your home. If mortgage payments are not made, the lender may sell your home.
  • non-provable debts, such as court fines and other obligations arising under an order made in family proceedings or under a maintenance assessment made under the Child Support Act 1991. Non-provable debts are not included in the bankruptcy proceedings and you are still responsible for paying off such debts;
  • benefit overpayments, where the benefit provider can recover any benefit overpayments from further benefits you receive until you are discharged, when you will usually be released from these debts; and
  • student loans.


The official receiver, or trustee, dealing with your bankruptcy will write to all your creditors to tell them you are bankrupt. Your creditors can then register a formal claim in your bankruptcy, by sending notice of your debt to the official receiver or trustee.

 
Not all of your debts can be included in your bankruptcy, these are known as non-provable debts and you will be responsible for continuing to pay them. These include CSA assessments, fines and maintenance and any obligation under a confiscation order made under section 1 of the Drug Trafficking Offences Act 1986, or section 71 of the Criminal Justice Act 1988 or under Parts 2, 3 or 4 of the Proceeds of Crime Act 2002. 

 

What is a secured debt?
A secured debt is any debt where the creditor has the right to repossess an item of property if you do not keep up the payments for it; for example a mortgage for the purchase of a property or a hire purchase agreement for the purchase of a motor vehicle.  

 

What will happen to my secured debts in bankruptcy?
If you do not continue to make payments to your secured creditors after the bankruptcy order, the creditor can take steps to repossess your property.  It could then be sold to pay the debt.

 

What will happen if my secured debt is not paid in full after the sale of my property?
There will be what is known as ‘a shortfall’.  This shortfall will become an unsecured debt in your bankruptcy. 

 

What happens to a joint debt in bankruptcy?
In the case of a debt that you owe jointly with another person (joint debt), creditors have the right to claim the balance of the debt from each person who signed the contract. Each person is responsible for full payment of the debt.  This is known as ‘joint and several liability'. 

  
If you have a joint debt and are made bankrupt, you can include the whole of the joint debt in your bankruptcy.  If other people who signed the contract are not bankrupt, the creditor can still pursue them for the full amount of the debt. 

 
Where all of the parties to a joint debt are made bankrupt, they should each include the whole of the joint debt in their bankruptcy.  So you should all list the full amount of the debt in your Statement of Affairs.

 

What is an unsecured debt?  
An unsecured debt is where there is no security (or collateral) held by the person or company that provides the money to buy goods or services.  Unsecured debts can include credit cards, rent, utility accounts, overdrafts or unpaid taxes.   You should not carry on paying an unsecured debt after you are made bankrupt unless it is a debt you cannot include in your bankruptcy.    See ‘Will all my debts be included in my bankruptcy?’. 

 

What happens to my council tax arrears in a bankruptcy?
Certain amounts of council tax are classed as provable debts in bankruptcy. These are:

  • All arrears outstanding at the date of the bankruptcy.
  • The monthly instalment for the month in which you were made insolvent where, at the date of the bankruptcy order, the day on which that payment is due has passed and the payment has not been made.
  • Where you have failed to comply with a reminder notice. This would mean the whole amount of the council tax for the year is due and payable, so the whole sum is a provable debt in a bankruptcy. 

 
NB Where there have been no unpaid reminder notices or instalments due there is no provable debt in a bankruptcy for Council Tax.  This means you must continue to pay your instalments as usual.

 

What happens to my bankruptcy debts after I am discharged?  
Once you are discharged from your bankruptcy you are usually released from the unsecured debts that existed at the date of the bankruptcy and which could be included in the bankruptcy.   See ‘Will all my debts be included in my bankruptcy?’.  

 
There are some debts you will not be released from when you are discharged.  These include:

  • any debts obtained through fraud;
  • a liability to pay damages in respect of personal injury to someone; or
  • any obligation to pay a lump sum or costs made in family proceedings or under a maintenance assessment made by the Child Support Agency.

 

Someone has signed as guarantor on my loan. How will they be affected if I go bankrupt?  
A guarantor signs a contract promising that they will pay the creditor if the person who obtained the loan cannot.  Bankruptcy does not change this. If you are made bankrupt the creditor can no longer pursue you for the loan, but they can still pursue the guarantor.  

If I am bankrupt, do I have to keep paying my gas, electricity and other bills?
You are responsible for any debt you incur after the date of bankruptcy order.  This includes rent, council tax and utilities bills.

 

Further enquiries about debts
If you still have unanswered questions about bankruptcy debts, you can contact The insolvency Enquiry Line on 0845 602 9848 – between 8.00am and 5pm Monday – Friday except bank holidays; or e-mail Insolvency.EnquiryLine@insolvency.gsi.gov.uk

  • Print this page