Understanding Bankruptcy in the UK
Bankruptcy is a formal way to deal with debts you cannot pay. It writes off most debts but has serious consequences. Understanding whether bankruptcy is right for you is important before you decide to declare bankruptcy UK.
What is Bankruptcy and How Does It Work?
Bankruptcy is a legal process that helps people who cannot pay their debts. When you declare bankruptcy UK, most of your debts are written off. In return, your assets may be sold to pay back some of what you owe to creditors.
In England and Wales, you can apply for bankruptcy yourself through the Insolvency Service website. A creditor can also make you bankrupt if you owe them £5,000 or more. The bankruptcy process is overseen by an Official Receiver who works for the government.
Bankruptcy typically lasts 12 months, after which you receive your bankruptcy discharge. This means you are freed from most of your debts. However, bankruptcy has significant consequences including potential loss of assets and impact on your credit rating for 6 years.
Bankruptcy is usually considered a last resort. There are often alternatives to bankruptcy like IVAs or Debt Relief Orders that may be more suitable for your situation. It is important to get proper advice before deciding if bankruptcy is right for you.
Bankruptcy UK: Pros and Cons
Bankruptcy has both benefits and drawbacks. Consider these carefully before deciding to declare bankruptcy.
Bankruptcy Advantages
- Most debts written off after 12 months
- Creditors cannot chase you for payment
- You can make a fresh financial start
- Pressure and stress of debt is removed
- Clear end point to your debt problems
Bankruptcy Disadvantages
- Assets including your home may be sold
- Affects your credit rating for 6 years
- Some jobs have bankruptcy restrictions
- Cannot be a company director
- May affect your ability to get credit
- Public record of your bankruptcy
How Does Bankruptcy Work in the UK?
Here is what happens when you apply for bankruptcy in England and Wales.
Apply for bankruptcy online
You apply for bankruptcy through the government website. The bankruptcy cost is £680. You provide details of your debts, income, and assets.
Adjudicator reviews your application
An adjudicator reviews your bankruptcy application. They check you meet the criteria and that bankruptcy is appropriate for your situation.
Bankruptcy order made
If approved, a bankruptcy order is made. The Official Receiver takes control of your assets and deals with your creditors on your behalf.
Bankruptcy discharge after 12 months
Most people are discharged from bankruptcy after 12 months. Your debts are written off and you can start rebuilding your finances.
Important Bankruptcy Restrictions to Know
Before considering bankruptcy UK, be aware of these key bankruptcy rules.
Your Home and Bankruptcy
If you own your home, it may need to be sold. The equity could be used to pay creditors. This is why some people choose an IVA as an alternative to bankruptcy.
Your Job and Bankruptcy
Some professions have bankruptcy restrictions. Check if your job would be affected before you declare bankruptcy UK.
Your Credit After Bankruptcy
Bankruptcy stays on your credit file for 6 years and will affect future borrowing. You may find it harder to get mortgages, loans, and credit cards.
Public Bankruptcy Record
Your bankruptcy is recorded on a public register that anyone can search. This public record remains even after bankruptcy discharge.
Alternatives to Bankruptcy UK
Bankruptcy is not always the best option. Depending on your circumstances, other debt solutions may be more suitable than going bankrupt.
Individual Voluntary Arrangement
Pay what you can afford for 5 years. Remaining debt written off. Keep your home. Often chosen when comparing bankruptcy vs IVA.
Debt Relief Order
For debts under £30,000 with low income. Debts written off after 12 months. Only £90 compared to £680 bankruptcy cost.
Bankruptcy UK Questions Answered
Find answers to frequently asked questions about bankruptcy in the UK.
Our advisors can help you understand if bankruptcy is right for you or if there are better alternatives.
Get Free Bankruptcy AdviceHow long does bankruptcy last in the UK?
Most people are discharged from bankruptcy after 12 months. This means you are freed from most of your debts. However, some bankruptcy restrictions may continue for longer, and bankruptcy stays on your credit file for 6 years from the date you were made bankrupt.
Will I lose my home if I go bankrupt?
If you own your home, it may need to be sold to pay your creditors. However, the Official Receiver will consider your family circumstances. If there is little or no equity in your home, you may be able to keep it. Each bankruptcy case is assessed individually.
Can I keep my job if I go bankrupt?
Most people can continue working while bankrupt. However, some professions have bankruptcy restrictions. These include solicitors, accountants, financial advisors, and company directors. You should check if your profession has any rules about bankruptcy before you apply.
What debts are not included in bankruptcy?
Some debts cannot be written off through bankruptcy in the UK. These include student loans, child maintenance arrears, court fines, and debts from fraud. Secured debts like mortgages are handled separately. We can explain which of your debts would be included in bankruptcy.
How much does bankruptcy cost in the UK?
The bankruptcy cost in the UK is £680 to apply in England and Wales. This must be paid before your bankruptcy application can be processed. If you cannot afford the bankruptcy fee, there may be other debt solutions more suitable for your situation, like a DRO which only costs £90.
What happens when you go bankrupt in the UK?
When you declare bankruptcy UK, an Official Receiver takes control of your assets. They may sell valuable items to pay creditors. You must follow certain bankruptcy restrictions, such as not obtaining credit over £500 without disclosing your bankruptcy. After 12 months, you are usually discharged and freed from most debts.
Is bankruptcy better than an IVA?
Whether bankruptcy is better than an IVA depends on your circumstances. Bankruptcy writes off debts faster (12 months vs 60 months for an IVA) but has more serious consequences including potential loss of assets. With an IVA, your debts and interest are frozen, creditors legally cannot contact you, and you can keep your home. Our free advice helps you compare bankruptcy vs IVA for your situation.
Is bankruptcy the right option for me?
Bankruptcy is usually considered when other options are not suitable. It may be right if you have significant debts, no realistic way to repay them, and few assets. However, there are often alternatives to bankruptcy like IVAs or DROs that may be better. Our free assessment helps you understand all your debt solution options.
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