Bankruptcy

What is bankruptcy?

Bankruptcy is a formal insolvency process for people who can't repay their debts. In England and Wales, it's governed by the Insolvency Act 1986 and administered by the Insolvency Service. Once a bankruptcy order is made, most unsecured debts are included and creditors can no longer take action to recover them. In exchange, your assets and income are assessed, and some may be used to repay what you owe.

How bankruptcy works

You apply for bankruptcy online through the Insolvency Service, and an adjudicator reviews your application and decides whether to approve it. There's a £680 application fee, normally payable in full before you apply, though instalments are available. If approved, the Official Receiver (or a Trustee in Bankruptcy) takes control of your finances, assesses your assets and income, and manages your case until you're discharged, usually around 12 months later.

Benefits of bankruptcy

• Debt write-off— Most unsecured debts, including credit cards, loans and utility arrears, are written off once you're discharged.
• Legal protection— Creditors can't chase you or take legal action once the bankruptcy order is made.
• Fixed timeframe — Most people are discharged around 12 months after the order, giving a clear end point.
• Affordable contributions — Any Income Payments Order or Agreement is based on what you can afford, for up to three years.

Things to consider

• Assets — Your home, vehicle and savings may be assessed and sold to repay creditors, though essential and lower-value items are often protected.
• Credit file impact— Recorded for six years from the date of the order, and listed on the public Individual Insolvency Register while it's in place.
• Restrictions— You can't act as a company director or borrow more than £500 without disclosing your bankruptcy, and some professions apply their own restrictions.
• Oversight — The Official Receiver reviews your finances, and can extend restrictions for up to 15 years if they find you acted dishonestly beforehand.
• Bank accounts — Some banks close or restrict accounts when a bankruptcy order is made, though basic accounts are usually still available.

Who bankruptcy is for

• No realistic way to repay— Suits people whose debts they can't realistically repay, where other solutions aren't a fit.
• No set debt limit— There's no minimum or maximum debt level set by law.
• Unable to pay as debts fall due— Available if you can't pay your debts as they're due, or your debts exceed your assets' value.
• Application fee — Requires the £680 application fee, payable in full or by instalments before you apply.

Speak to an experienced debt advisor

Everyone's situation is different, and the right debt solution depends on yours. Speak to one of our advisors for free, impartial advice on whether bankruptcy — or another solution — could work for you.