Bankruptcy
Bankruptcy is a formal legal process that can clear unaffordable debts, usually within 12 months. It is a serious step with lasting consequences, but for some people it is the quickest route to a fresh start.
How to go bankrupt
In England and Wales you apply online through GOV.UK and pay a fee of £680 (payable in instalments). An adjudicator reviews the application and, if approved, makes the bankruptcy order. The Official Receiver then manages your case, and may appoint a trustee to deal with any assets. A creditor can also petition for your bankruptcy if you owe them £5,000 or more.
Northern Ireland uses a court-based process; Scotland uses sequestration and the Minimal Asset Process instead.
What happens to your assets?
Assets of value – including your home, savings, shares and valuable items – can be sold by the trustee to repay creditors. Everyday household goods, tools of your trade and a modest vehicle are usually kept. If you own property with equity, the trustee has three years to deal with it; a partner or relative may be able to buy out your share.
Income payments agreements
If you have spare income after reasonable living costs, you may be asked to make payments for three years under an Income Payments Agreement (IPA) or Order (IPO). This continues even after you are discharged from bankruptcy.
Restrictions while bankrupt
- You cannot borrow more than £500 without disclosing your bankruptcy
- You cannot act as a company director or trade under another name without disclosure
- Some professions restrict bankrupt individuals
- Your name appears on the public Insolvency Register
- Bank accounts may be frozen initially and new accounts limited to basic products
Discharge and your credit file
Most people are discharged automatically after 12 months, freeing them from the debts included. Bankruptcy stays on your credit file for six years from the order date, and some lenders ask about past bankruptcies indefinitely.
Alternatives to bankruptcy
Before applying, a regulated adviser will usually check whether a DRO (for smaller debts and few assets), an IVA (where you can afford meaningful monthly payments) or a DMP would achieve a better outcome.
Frequently asked questions
How much does bankruptcy cost?
£680 in England and Wales, which can be paid in instalments before the application is submitted. There is no further fee from the applicant, although the Official Receiver recovers costs from any assets.
Will I lose my house?
If there is equity in your home it may need to be sold, although a joint owner or family member can sometimes buy the trustee's interest. If there is no equity the trustee may take no action, but the interest can be revisited within three years.
Which debts are not cleared by bankruptcy?
Student loans, court fines, child maintenance, secured debts, debts from fraud and some benefit overpayments survive bankruptcy.
Can I go bankrupt if I'm self-employed?
Yes. You can continue trading as a sole trader in your own name, but must disclose the bankruptcy when obtaining credit over £500.
Want to know if this applies to you?
Free enquiry. No obligation. Regulated advice before any decision.