Bankruptcy benefits and things to consider

Let’s look at the advantages of bankruptcy:

Covers most debts

Most debts can be included in bankruptcy, such as:

• credit cards
• energy arrears
• water arrears
• buy now, pay later
• store cards
• overdrafts
• personal loans
• benefit overpayments (providing no fraud was involved)

Just be aware, a few debts, like criminal fines and child maintenance arrears, are excluded. You also won’t usually be able to include any debts that started after you went bankrupt.

Debt written off

Any outstanding unsecured debt will be written off at the end of your bankruptcy, giving you a clean slate. 

You’ll only have to make regular payments if you can afford to

You won't be asked to make regular payments towards your debts unless you have at least £20 left over every month after covering your essential costs. If your entire income is from benefits, you won’t be asked to make payments regardless of how much money you have left at the end of the month.

No contact from creditors

Creditors whose debts are included in your bankruptcy have to stop contacting you for payment. The official dealing with your bankruptcy will manage all contact with your creditors.

Protection from further legal action

Bankruptcy stops creditors whose debts are included in your bankruptcy from taking further legal action against you. This includes sending bailiffs to your home.

There are certain things you’ll need to weigh up against the benefits of bankruptcy before deciding whether to go ahead:

Bankruptcy will affect your credit rating

Bankruptcy will severely damage your credit score, meaning mainstream lenders will be reluctant to let you borrow. It will stay on your credit report for six years, or even longer if your restrictions are extended.

There’s a fee

Bankruptcy costs £680 in England and Wales (and a similar amount in Northern Ireland). You can pay in instalments, but you’ll need to pay the full fee before submitting your application. 

Your details will be added to a public register

Details of your bankruptcy will be recorded on the Insolvency Register, which holds information about all current bankruptcies, individual voluntary arrangements and debt relief orders.

Your details will automatically be removed from the register three months after you’ve been discharged from bankruptcy.

If revealing your address would put you in danger, you can apply to have it withheld. Speak to a debt adviser if you’re in this position.

You may need to sell your home

If you own your home, you might have to sell it and use the money to pay off some of your debt.

You may need to sell your valuables

When you become bankrupt, you can keep essential items for daily living, such as:

• clothes
• bedding
• furniture
• white goods
• tools and equipment for your job

The rest of your things may be passed onto the official receiver to sell to pay back some of your debt. 

It might affect your job

You might not be allowed to stay in certain roles if you’re made bankrupt e.g. if you work in financial services or you have a role in the police or government. Check your contract to find out if your job will be affected.

Potential monthly payments

If you have at least £20 left over every month after covering your essential costs, you may need to make monthly payments to the bankruptcy for up to three years through an income payment agreement. This can start at any point during your bankruptcy. 

If your only income is from benefits, you won’t be expected to make payments towards your debts.

Strict restrictions

During bankruptcy, you can’t do certain things, including:   

• applying for credit of more than £500
• acting as a company director unless you get court approval

Restrictions can be extended

Bankruptcy restrictions usually remain in place until you’re discharged (generally after 12 months). 

But your restrictions may be extended if:  

• your bankruptcy was caused by dishonest or reckless behaviour 
• you break any rules during your bankruptcy
• They can be extended by as long as 15 years in extreme cases.

Potential lenders and employers may want to know

You may have to reveal if you’ve ever been made bankrupt in some job or credit applications.  This may make it harder to borrow or secure work in certain areas. Some employers may view bankruptcy unfavourably, particularly if your role involves financial responsibilities. 

Going bankrupt is a big step so it’s important to get impartial debt advice first. If you want to get clued up before getting debt advice, you’ll find lots more information about bankruptcy on our website.