Bankruptcy: fact or fiction

We’ve all heard of bankruptcy, and we all know it can sound scary. But, what is it really?

At its most basic, bankruptcy is a debt relief option provided by the Government which clears most of your debts in 12 months.

Bankruptcy is one of many debt relief options – some of which are provided by the Government and some of which are provided by private organisations.

To help you better understand bankruptcy, we’ve created a number of videos, posters and information sheets explaining what bankruptcy is and isn’t.

You can also get free help and advice from a debt adviser.

What is bankruptcy?

Bankruptcy: the basics

Find out more about how:

bankruptcy works,
how it can and can’t affect your life; and
how it compares to other debt relief options.

Who can apply for bankruptcy?

You can apply for bankruptcy if you:

can't pay your debt

live in England and Wales

If you live in Scotland or Northern Ireland the rules for dealing with debt are different. You should speak to a debt advisor to find out more.

The bankruptcy journey

People looking at road ahead — An overview of the bankruptcy process

Find out your options for dealing with debts
Get free help and advice from a debt advisor
When you are sure bankruptcy is the right option complete your application online
Pay the full £680 fee (you can pay the fee in instalments and search for a grant)
Submit your online application to the Insolvency Service
An Insolvency Service official (called the ‘adjudicator’) reviews your application
If you meet the criteria, the adjudicator approves your application and makes your bankruptcy order
You stop making payments towards most of your debts immediately and creditors included in your bankruptcy are advised to stop contacting you
You have to follow some restrictions while bankrupt
A trustee (usually an Insolvency Service official called the official receiver) takes over managing your debts
The trustee uses your ‘non essential’ assets to help pay back what you owe (you can usually keep household items and items you need for your job)
If you have extra income, the trustee sets up a 3 year plan called an income payments agreement to help payback what you owe (if you don’t have any extra income you wont be asked to make payments)
After 12 months bankruptcy ends and most of your debts are cleared (debts not included in your bankruptcy won’t be cleared)
In most cases, you won’t have to follow restrictions once your bankruptcy ends

How bankruptcy will affect you

"Our aim isn’t to take everything from you, but to manage fair repayment of your debts" - Liesl Cook Insolvency Service official receiver

What happens after you're made bankrupt?

One of our official receivers, Liesl Cook, describes what happens after you’re made bankrupt.

What happens to your belongings?

We look at the information you have given us to understand what you own, what it’s worth and what you need it for.

We’re not usually interested in household items like:

your clothes

beeding, appliances or household furniture

bedding appliances or household furniture

items you need for your job like tools or a vehicle

Find out more from our official receiver Danny Brogan

What happens to your home?

If you own your home or another property, the trustee can sell it if it’s the only way to pay your debts. However, when and how this happens depends on your particular circumstances and on how much ‘beneficial interest’ you have in the property.

Your beneficial interest is your share of the property after any secured debts (like your mortgage) have been paid. For example:

if you own your own home and it's value is £150,000, and you have £100,000 left to pay on your mortgage, your beneficial interest will be £50,000

if you own this same home equally with someone else your beneficial interest would be £25,000. — if you own this same home equally with someone else your beneficial interest would be £25,000

These examples are for illustrative purposes only and your own circumstances will be assessed when calculating your beneficial interest.

Danny Brogan explains further in our video

What happens to your vehicle

You may be able to keep your vehicle if you personally need it:

for work or caring purposes

because alternative transport is not practical for your daily needs

If you are entitled to keep a vehicle but your vehicle is valuable:

it will be sold and you will be given around £1000 to buy a replacement

If none of the above apply to you, you may still be able to keep your vehicle if someone is willing to pay the official receiver the current market value for it.

Your credit rating

During your bankruptcy you must tell any lenders who are offering you credit of more than £500 that you are bankrupt.

When your bankruptcy ends and you have been discharged, you may ask the credit reference agencies to update your file. However, your bankruptcy will stay on your credit reference file, usually for 6 years.

The 3 main credit reference agencies in the UK are:

Find out more about credit and managing your credit reference file.

It is up to individuals/organisations to decide whether they will give you credit. After 6 years, lenders may ask you if you’ve ever been made bankrupt when deciding whether to lend you money. We’re not saying it’s impossible to get credit after bankruptcy but it may be more difficult.

That said, if you are having difficulties with your debts and unable to make your monthly repayments then your credit rating may already be poor. A debt advisor will help you make the best choice for your circumstances.

Bankruptcy and your job. Before going bankrupt check your employment contract to see if you need to tell your employer or if bankruptcy can put your job at risk. More information may be available from your union or professional body. There may be issues if you're employed in: A role that involves financial matters and cash handling (including the gambling industry) such as accountancy, financial services, bank clerk, etc. A profession requiring a licence or registration with a professional body such as the legal profession, medical profession and public house license holder. The police, armed forces and security industry. A role involving property such as an estate agent — Public Office Appointments

You are also not allowed to continue in a position of public office such as a charity trustee, Justice of the Peace and MOT authorised examiner – check the terms and conditions of your appointment.

Who can find out about your bankruptcy. Your bankruptcy is not shown in local papers. Your bankruptcy will be shown permanently at www.thegazette.co.uk. The image shows a example. This entry will also appear in internet search engine results for the first 15 months. It will also be put on the Individual Insolvency Register and will be removed 3 months after your discharge. Do an internet search for the Insolvency Register to see this. So anyone can find out are bankrupt but they would have to specifically go looking for that information.

Your bank account

Denise Paul from the senior official receiver’s office explains what will happen to your bank account after bankruptcy.

How bankruptcy will affect your life

A quick search on the internet will show you examples of people who say bankruptcy was the best thing they ever did, or it was something they regretted.

There is no way for us to tell you how bankruptcy will affect you. We can only tell you the facts about the process so you can weigh up your options. Even then, this is not a substitute for talking about your situation to a qualified debt advisor who offers free debt advice.

If you’re struggling to pay your debt, bankruptcy is a debt relief option that is available to you. Your other options are:

Find out about them all. And importantly, be honest with yourself about your financial situation, the impact it’s having on your life and whether or not there is any way you can realistically pay your debts yourself.

A lot of people say they were worried about going bankrupt but it was the best option for their circumstances at the time. If that’s you then we’re here for you.