Bankruptcy
If you can’t pay your debts and the amount you owe is more than the value of your possessions, you might be able to declare yourself bankrupt.
Checking won’t harm your credit score
What is bankruptcy?
Bankruptcy is a way to deal with debts you can’t pay. You might be able to declare yourself bankrupt if:
- you can’t afford to pay back what you owe
- the value of your possessions is less than the amount you owe
Bankruptcy involves selling your assets and sharing the money among your creditors. It releases you from most of your debts, usually after 12 months. If you go bankrupt, most of your creditors won’t be able to chase you to pay or take you to court.
Bankruptcy usually lasts 12 months but it stays on your credit file for six years from the date it begins. You’ll probably find it very difficult to borrow during this time. Lenders who are prepared to offer you credit may charge you more, as you’ll be classed as a high-risk customer.
Even after the bankruptcy falls off your credit report, lenders may still ask if you’ve ever been made bankrupt. Mortgage providers are particularly likely to ask this question.
Less than 1% of bankruptcy applications are refused. When you submit your application to the Insolvency Service, they check:
- you’ve lived in the country long enough to qualify for bankruptcy
- the application was submitted by you and not someone pretending to be you
- there are no other current bankruptcy petitions in your name
- the debts you want to include haven’t been covered by a previous bankruptcy petition
- you aren’t over 55 with a large money purchase pension you could use to pay your debts
- you can’t afford to repay your debts
Providing you pass these checks, your bankruptcy petition is highly likely to be accepted.
Most debts can be written off in bankruptcy. There are some exceptions e.g. mortgages (if you want to keep the house), criminal fines and child maintenance arrears. Some of the main debts that can be included in bankruptcy are:
- Credit Cards
- Buy Now Pay Later
- Store Cards
- Overdrafts
- Personal Loans
- Lines of Credit
If we are unable to help you with all of your debts, or for further information and support to help you with your money troubles, please visit MoneyHelper.
Is bankruptcy right for me?
Bankruptcy might be right for you if you can’t pay your debts and:
the amount you owe is more than the value of your possessions
you can’t see your situation getting any better
it won’t affect future plans e.g. starting a business
Bankruptcy benefits & things to consider
There’s a lot to think about when you’re considering a DMP. To help you decide if a DMP is right for you, we’ve outlined the main benefits and things to bear in mind:
You can apply to make yourself bankrupt if you can’t pay your debts.
Someone at the Insolvency Service will look at your application and decide whether to accept it.
Bankruptcy usually lasts for 12 months.
When it ends, your outstanding unsecured debt (credit cards, loans, overdrafts etc.) will be written off.
You’ll only be asked to make payments towards your debt if you can really afford to.
Available in England, Wales and Northern Ireland
Your lenders will stop chasing you for payments.
Bankruptcy can seriously affect your credit rating.
We’ll need to check if it’s suitable for you. If not, we’ll suggest other ways to deal with your debt.
You may have to reveal you’ve been made bankrupt when applying for future jobs or credit.
If you own your home, you may have to sell it to help cover what you owe.
You may also have to sell other non-essential items that you own.
It costs £680 in England and Wales and a similar amount in Northern Ireland (the exact amount depends on your situation)
Expert verdict: Bankruptcy gives you protection from bailiffs
Bankruptcy means customers can live without fear of bailiffs and lets them write off unaffordable debt.
Katrina – Debt advice specialist
Money Wellness
Stages of Bankruptcy
1. Advice
one of our friendly advisers will ask you for all the information they need to assess your situation.
2. Options
They’ll explain your options and help you decide if bankruptcy is right for you.
3. Proposal
If bankruptcy is right for you, we’ll help you with your online application.
4. Set up
If your application is accepted, a bankruptcy order will be made and your lenders will be told.
How it helps:
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Bankruptcy FAQs
The cost of bankruptcy varies slightly depending on where you live in the UK.
In England and Wales, it costs:
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£130 for the application fee
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£550 for the bankruptcy deposit
In Northern Ireland, it costs:
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£151 for the court fee
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£525 for the bankruptcy deposit
-
about £7 for the solicitor’s fee
The court fee may be waived in Northern Ireland if you’re on a low income or you get certain benefits.
You can include some secured debts in your bankruptcy in certain situations.
Mortgages and secured loans
These can be included in your bankruptcy if:
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you give up your house
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your house gets repossessed
If you stay in your home, you’ll need to keep paying the mortgage and any loans secured against it. You may lose your home if you don’t.
Hire purchase and logbook loan agreements
A finance company will often cancel hire purchase or logbook loan agreements if you go bankrupt. This means you’ll have to hand back the car or other item, but the debt will be included in your bankruptcy.
If you’re allowed to keep the car or other item, you’ll have to keep making the payments.
Once you go bankrupt, you may be asked to make payments towards the debts included in your bankruptcy but only if you can really afford to. Your lenders will stop chasing you for payment.
When your bankruptcy ends, usually after 12 months, any outstanding debt included in your bankruptcy will be written off.
There are certain rules you’ll have to follow while you’re bankrupt. One of these rules is to co-operate with the official receiver (the person dealing with your bankruptcy). This means making sure you give them any information they ask for etc.
While you’re bankrupt, you won’t be able to:
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set up a company or act as a director without permission from the court
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do business under a different name without telling everyone you do business with the name under which you were made bankrupt
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borrow £500 or more without telling the lender you’ve been made bankrupt
You could be sent to prison for doing any of things.
Bankruptcy will affect your home in different ways depending on whether you own or rent it.
Bankruptcy for homeowners
If you have a mortgage on your home and there’s some equity in the property, you will usually have to sell it. Some of this will go to the official receiver (the person dealing with your bankruptcy) to cover their costs. The rest will be shared between your creditors.
Bankruptcy for private and social housing tenants
As long as your rent payments are up to date, you should be able to stay in your home after bankruptcy.
If you’re behind with your rent, this debt will be included in your bankruptcy. Your landlord won’t be able to take you to court to get their money back, but they may still evict you. This is less likely to happen if you’re a social housing tenant rather than a private tenant.
Most jobs aren’t affected if you go bankrupt. But there are some exceptions, so it’s important to check before you go ahead.
In some jobs, bankruptcy may result in demotion or even being dismissed. Also, some professional or licensing bodies won’t allow you to renew your membership if you’ve been made bankrupt.
You should check if bankruptcy will affect your job if you work:
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in a role that requires you to handle cash
-
for the police
-
for the armed forces
-
in financial services
-
in medicine
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in law
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in property (e.g. an estate agent)
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as a pub licensee
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in security
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as a sole trader or in a partnership
It can be tricky getting a mortgage even with a great credit score. If you’ve been made bankrupt, you’ll find it even harder. But it is possible.
Your bankruptcy will stay on your credit report for six years from the date it started. It will probably be very difficult to get a mortgage during that time. You may be able to get a mortgage from a specialist lender, but this is likely to be an expensive option.
Even after the bankruptcy falls off your credit file, mortgage lenders may still ask if you’ve ever been made bankrupt. This can affect the likelihood of your application being approved.
The best way to improve your chances of getting a mortgage is to work on boosting your credit score. Borrowing small amounts and paying it off regularly and on time will help with this.
It may also help if you:
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can offer a large deposit
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are prepared to accept higher-than-average interest rates during the early stages of your mortgage
The more time that passes after your bankruptcy, the better your chances of getting a mortgage – providing you use credit wisely during that time. It’s all about demonstrating to lenders that you no longer pose a high risk.
When you’re made bankrupt, your details will be added to the public insolvency register. They will stay on there until three months after your bankruptcy ends.
You can ask to have your address removed from the register if publishing it puts you at risk of violence.
A wide range of debt solutions and services
Bankruptcy is a big step and one that shouldn’t be taken lightly. It may be that another debt solution is more suitable. We’ll make sure we recommend the best option for your individual circumstances and your long-term financial wellbeing.
You can find more information below on alternatives to bankruptcy.
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