We consider the cost of going bankrupt and understand how these costs can be paid.If you are thinking about bankruptcy one thing you will need to understand is the cost involved and how to pay this.
When you apply for bankruptcy at your local court you will have to pay a fee on the day. Unless you pay this fee in cash your bankruptcy application will not be processed.
You must therefore understand what this fee will be and get the necessary bankruptcy help to decide how get the money together to pay it.
The bankruptcy court fees
The bankruptcy cost is currently £700 per person. This is made up of a Court Fee of £175 and what is known as a bankruptcy deposit of £525.
The full £700 must be paid to the court clerk on the day you go to the court with your bankruptcy application form.
You must pay in cash as the court will not accept cheques or card payments.
It is vital that you remember to take your cash to pay the bankruptcy cost on the day. If you forget you will not be able to go bankrupt and will have to return to the court on another day.
Options to reduce bankruptcy costs
In certain situations you may be eligible for a waiver of the £175 court fee.
You will not have to pay the £175 court fee if you are currently receiving benefits including income support, jobseekers allowance or working tax credits (as long as you are not also receiving a child tax credit).
Also the court fee will not be payable if your annual income before tax and other deductions falls below certain levels. For example below £13000 if you are single with no children or £18000 if you are a couple.
However whatever your personal financial circumstances you will always have to pay the bankruptcy cost of £525.
How to pay for the bankruptcy fee
One of the main problems with the cost of bankruptcy is that you simply do not have the money available to pay for it.
Most people have to save the money to pay for their bankruptcy. The best way to do this is to simply stop paying all of your unsecured creditors. The money you would have paid them can then be saved towards paying for the bankruptcy fee.
Of course if you stop paying your creditors or more than a month or two, they are likely to start debt collection actions against you. You should therefore not stop making your payments to your creditors unless you have first taken bankruptcy advice from a debt expert.
Many people borrow the money to go bankrupt. This could be from friends or family.
If you have available credit on a credit card or overdraft facility, you could use this to draw cash to pay for the required fee. This is a perfectly acceptable way of borrowing money to pay for the cost of your bankruptcy.
An alternative to paying bankruptcy costs
If you believe that bankruptcy is the right solution for you but you know that you will struggle to pay the bankruptcy cost then an alternative to consider is a debt relief order.
A debt relief order (DRO) is an alternative to bankruptcy which can be used by people who owe less than £15000.
The effects are similar to bankruptcy but the cost is far less with a fee of just £90.
However the problem with the DRO solution is that you will only be eligible to use the solution if you are not a homeowner. Your other assets must not be worth more than £300 (other than you car which could be worth up to £1000) and your disposable income must not be more than £50 a month.
The cost of extra bankruptcy advice
Even though you have to pay for the cost of bankruptcy, the court will not be able to give you any further bankruptcy help such as about whether bankruptcy is the best solution for you or how to correctly complete your bankruptcy application forms.
It is therefore always sensible to speak to a debt expert before deciding to declare yourself bankrupt and you will normally be able to get good bankruptcy advice for free.
However if you want further help and support throughout the bankruptcy process or with completing your application forms you may well have to pay for this.
Generally speaking you will have to pay around £300 per person for professional bankruptcy help. If you are being quoted more than this you should make sure you speak to Beat My Debt.
Weigh up all the factors
Understandably the cost of bankruptcy can be enough to put you off the idea of using this debt management solution.
However if you are worried about paying the bankruptcy fees it is important to weigh these up against the benefits you will get from going bankrupt overall.
If you have taken bankruptcy advice from an expert debt advisor and bankruptcy is clearly the best solution for you then it may well be in your interests to either borrow or take the time to save for the required fees.
Even if saving takes you a number of months, the outcome of declaring bankruptcy will often be far better for you than starting a debt management plan or IVA which could mean you have to maintain monthly payments possibly for many years.
